ODP Corporation Plans to Buy Back 35% of its Outstanding Shares

Stock buyback activity remained muted for a second week in a row with just 7 new buyback announcements. The ODP Corporation (ODP) topped our list this week with a $600 million share buyback announcement representing around 35% of its market cap at announcement. ODP’s buyback includes the launch of a $300 million modified “Dutch auction” cash tender offer.

The other significant buyback announcements were by Unity Software (U) and M&T Bank Corporation (MTB), announcing $2.5 billion and $3 billion share repurchase plans respectively. 3D game engine developer Unity Software decided to acquire ironSource (IS) last week in a $4.4 billion all-stock deal at a significant 74% premium to the 30-day average price of ironSource before the deal was announced. The buyback will commence once the deal is completed and is expected to offset some of the dilution from this all-stock deal.

The ODP Corporation is an American office supply holding company headquartered in Boca Raton, Florida. The company’s portfolio of brands includes Office Depot, OfficeMax, Grand & Toy, Ativa, TUL, Foray, Realspace, and DiVOGA.

In the age of Amazon.com and online shopping, it is not surprising Office Depot and Staples were seeing declining sales and the companies attempted to merge in 2015 before the deal was blocked by the FTC. Staples went private in 2017 and once again last year attempted to buy the physical stores business of ODP Corporation. This was rather unusual in the middle of a pandemic and especially considering ODP continues to close physical stores and last quarter saw a 9% increase in revenue in its Business Solutions Division, which was the business-to-business division, Staples was not interested in acquiring.

Overall revenue has been shrinking at ODP but to the company’s credit, it managed to increase earnings in three of the last four quarters. The company’s strongest quarter, the back-to-school season, is ahead of it in Q3. The company ended Q1 with $557 million in cash, $199 in debt and $714 million in capital leases. The stock appears very cheap with a forward EV/EBITDA of less than 5, although both revenue and earnings are expected to decline this year based on consensus analyst estimates. I can see why the company wants to buyback its stock but I would prefer they focus on either growing the top line or improving lackluster margins.

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