New owners would likely "slash the store base."
Staples spls stock jumped 13% on Tuesday after the Wall Street Journal reported that the office supplies retailer is in talks to sell itself, a sign investors may have lost faith in its ability to fix its business after a mega-merger last year with rival Office Depot odp was scuttled by the U.S. government.
According to the Journal, Staples is in early stage talks with a limited number of prospective private-equity bidders for a deal with no guarantees of happening, according the the paper’s sources. A Staples spokesman declined to comment to Fortune on the report.
Before the Journal report sent shares up, Staples’ stock market value was $5.5 billion, relatively small for a retailer that has annual sales of about $18.25 billion last year, but indicative of the troubles the retailer has been having. The company’s retail business in North America has been struggling for years as more office supplies are sold online, prompting it to close hundreds of stores. Comparable sales, which excludes the impact of newly opened or closed stores, fell 7% in the fourth quarter in the United States and Canada. Staples’ continuing operations lost $459 million in 2016.
Last month, it announced another 70 store closings in North America. In a research note on Tuesday morning, Gimme Credit director of research Carol Levenson said that any private equity owner would likely pick up the pace of that and “slash the store base.” A few months ago, Staples sold a majority stake in its European business to Cerberus Capital Management, a private equity firm.
In the nearly one year that has passed since U.S. regulators thwarted its plan to Office Depot on antitrust concerns, Staples has, under CEO Shira Goodman, been trying to win more small business contracts (and rely less on Fortune 500 giants) and further beef up its e-commerce, already a leader in drive-by pick up and delivery. That has included renting out office space to small businesses and individuals.
Staples made its initial offer to buy Office Depot (which itself had bought OfficeMax a few years earlier) in 2015 in a cash-and-stock deal valued at $5.5 billion at the time. One of Staples’ arguments, articulated under former CEO Ron Sargent, seeking to allay the government’s anti-trust concerns, was that Amazon had already become a major force in business services able to fend for itself.