Office Depot Buys Swedish Co. - Analyst Blog

Office Depot Inc. (ODP), in its streak to expand its global footprint, recently announced its plan of acquiring Swedish office supply company, Svanstroms Gruppen.

The acquisition will facilitate Office Depot to expand its European market presence, placing it among the leading office supply companies in Sweden. However, the acquisition must get clearance from Sweden's antitrust authority.

Office Depot, one of the leading suppliers of office products and services across the globe, through its alliance with AGE Kontor & Data AB, entered into the Swedish market in 2004. Later, it acquired AGE Kontor & Data AB and re-introduced it as Office Depot Sverige, with the addition of 13 retail stores and a contract business.

Owned by Mellby Gard Industri AB, Svanstroms Gruppen made various acquisitions in the office supply industry, such as Killbergs and Wettergrens to name a few. Svanstroms with more than 150 successful years in the office supply industry is expected to promote Office Depot's existing Swedish operations by enhancing its competitiveness in the region.

The transaction will unite both ODP's global aspects to the resources and talent of Svanstroms, and will help the company to provide better solutions for all of the office supply needs of its customers.

Office Depot is repositioning itself to remain afloat in a difficult consumer environment. The company is containing costs, closing underperforming stores, reducing exposure to higher dollar-value inventory items, shuttering non-critical distribution facilities and focusing on providing innovative products and services, which in turn, are expected to contribute to margin improvement.

Office Depot is reviewing capital-efficient opportunities to expand its reach in Eastern Europe and South America. The company believes that India and China will provide significant growth opportunities going forward. Further, Office Depot announced that it would try to secure individual contracts and manage its costs to alleviate the negative impact of the lost business.

We remain cautious about the torpid job market. As the economy continues to lackluster, consumers and small businesses remain frugal about big-ticket spending on items such as business machines and other durable products. Therefore, we believe that the demand for office products is closely tied to the health of the economy.

Currently, we remain Neutral on the stock. However, Office Depot, which competes with Staples Inc. (SPLS) and OfficeMax Inc. (OMX), holds a Zacks #4 Rank, which translates into a short-term Sell recommendation.

 
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