Office Depot and OfficeMax Talk Merger, Shares Soar on Tuesday

Office supply retailers Office Depot ODP and OfficeMax OMX have soared on Tuesday on word of a possible merger. According to Reuters, the companies are in advanced talks, but nothing is set as of yet. It is expected to be a stock-for-stock transaction, as notes Reuters. As mentioned by Reuters, analysts have been looking for such a move in this cluttered sector for quite some time. Sales declined during the financial crisis and both stores are facing increasing competition from online retailers and mass merchants such as Amazon AMZN and Target TGT, as notes Reuters. According to Reuters, the deal could be sealed as early as this week. Do They Have That? Reuters notes that the deal would help the companies cut costs, close stores and increase clout with suppliers. If this pans out, the move could help the newly-merged company compete with industry-leader Staples SPLS. Staples currently holds the lead by a wide margin, with Office Depot and OfficeMax holding second and third place, respectively. Staples' market cap is nearly four times that of Office Depot and OfficeMax, combined. Staples' Investors Counting on More Paper? Interestingly, the potential merger between Office Depot and OfficeMax appears to have triggered a surge for Staples, as well. After hovering around $13 for nearly two weeks, Staples has shot up past $14.50 in the pre-market. If the deal happens, competition will naturally reduce in the industry. This could boost prices, which may be why Staples has had some positive spillover from the merger talk. Staples is at its highest point in the past nine months. It is up around 14 percent on Tuesday. Market Reaction Office Depot has spiked through the roof on Tuesday. After hovering in the low-to-mid $4 range for the past month, the stock has climbed close to $6 in the pre-market. The Boca Raton, Florida firm has surged nearly 29 percent on Tuesday and is at its highest point in the last two years. Meanwhile, OfficeMax has experienced a surge of its own. After hovering in the $10.50 to $11+ range for the past month, the Naperville, Illinois firm is closing in on $13.50 in the pre-market. The stock is at its highest point in the last 22 months and is up nearly 24 percent on Tuesday.