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An Opportunity To Short?

11 May 2016 by lberuti

Shares in SPLS (Staples Inc) and ODP (Office Depot Inc) plummeted the most ever after a federal judge blocked the combination of the 2 largest office suppliers, saying it would create an unrivalled giant. The companies said they would not appeal. That is not as bad a piece of news for SPLSs debt holders though, as the leverage will remain around 3.2 times. It will not go up to 4.5 times as would have been in the case had the merger gone through. Fitch were quick to react and removed the Rating watch negative following the announcement, and affirmed SPLS at BB+ with a stable outlook. Accordingly, the 5 year risk premium traded 23bps tighter at 252bps in light flows. Some argue that it could actually be a good opportunity to short the name, given that a 3.2 times leverage remains high and that SPLS as a standalone business has been one of the worst performing in retail with the office supply segment in secular decline and negative sales and margin trends for years.