ODP (Office Depot)

Ticker
$ODP
Industry
Distributor
Type
Spin-off
Rating
Not Rated
Category
General
Target Price
$58.00
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ODP is the remnants of the Office Depot and OfficeMax merger a few years back. They operate retail stores selling office supplies and have a B2B business which distributes office, janitorial, etc. supplies to small and medium sized businesses. The company was on a path to separate into 2 publicly-traded companies but is evaluating offers for the retail segment prior to completing a spin-off.

Notes

Retail chain segment — exploring strategic alternatives — sale or spin-off?
B2B segment — has an interesting financial history and is key to the thesis — sales / operating income past few years:

2017 — $5108m / $262m

2018 — $5282m / $243m

2019 — $5279m / $271m

2020 — $4683m / $116m

***Can this segment get back to 2017-2019 levels??

Sale of CompuCom division — announced December 2021 — $305m in combo cash, debt, and contingent consideration
  • ODP announced in January 2021 they would sell the CompuCom business only a few years after acquiring it for $1bn and on 12/31/2021, they announced CompuCom was being sold for $305m in a combination of cash, debt, and contingent consideration.
Business generates a ton of cash — though capital allocation questionable: repurchases at higher prices and halted dividends during COVID
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Greenlight Capital — Medium sized position mentioned in 4Q21 letter
ODP Corporation (ODP) is a holding company that operates retail brands including Office Depot and OfficeMax, and provides business services and products through a B2B distribution platform. ODP is undergoing a corporate transformation that we expect will conclude over the next year, resulting in the separation of its retail and business solutions divisions. ODP has a strong cash position and an undemanding valuation and is in the process of buying back 20% of its shares by the middle of 2022. As the company is being broken up, we believe that a sum-of-the-parts analysis is appropriate. In June, Staples offered $1 billion in cash for ODP’s retail division, so we will use that. The remaining B2B business has better prospects and we believe that it deserves a higher multiple. We see $200 million of 2022 pro-forma EBITDA for this segment and by assigning a 7x multiple we arrive at $1.4 billion for this piece. Adding in $400 million of net cash and our estimate of $219 million of current value for its recently announced sale of CompuCom Systems (a technology support and services unit), brings us to just over $3 billion of total value. Using the last reported share count, this equates to about $55 per share.
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Financials & Valuation

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52m shares outstanding x $39 price = $2bn market cap. Net cash at 3Q21 is $400m = $1.6bn EV. See VDL post under resources section for calculation — $26 for B2B segment, $19 for Retail segment + $13 for net cash and CompuCom sale.

Resources

ODP Corp ($ODP) — Write-Up (1/2/2022)
ODP Corp ($ODP) — FY21