Office Depot, OfficeMax Merger: 'It's About Damn Time'

NEW YORK (TheStreet) -- After reports over the weekend indicating Office Depot(ODP) and OfficeMax(OMX) are about to announce a merger, investors and analysts appear to be saying: "Finally."

A potential merger could help alleviate the operating struggles of big-box office retailers OfficeMax, Office Depot and Staples(SPLS) , amid overexpansion and a change in the marketplace with the rise of smaller suppliers such as W.B. Mason and new entrants as big as Wal-Mart(WMT) , Costco(COST) and Amazon(AMZN) .

"It's about damn time," Oppenheimer retail analyst Brian Nagel said, quoting basketball star LeBron James, in a note to clients evaluating a proposed merger.

"An Office Depot and OfficeMax combination would spur a rationalization of excessive office products retailing real estate and render the sector more capable of managing through a challenged product cycle and competing with new entrants such as Amazon.com," Nagel said.

Investors in Office Depot, OfficeMax and Staples are taking the merger speculation of the industry's number two and three leading players as a positive sign for office suppliers.

Shares of Office Depot(ODP) and OfficeMax(OMX) spiked in trading Tuesday on the reports of advanced merger talks. Office Depot surged over 9% to $5.02, while OfficeMax climbed over 20% to $13. Staples, which could be a beneficiary of a deal, rose over 13% to $14.65.

The key to a potential merger and an improving outlook for all players involved centers on store closings, operating synergies and asset disposals, according to industry analysts. Meanwhile, the work of activist funds such as Starboard Value, Office Depot's largest shareholder, may have helped to put companies in a position to try a merger.

"We believe that a merger has made sense for years and that the recent monetization of key assets provides the necessary cash flow to pay for the integration costs," Gary Balter of Credit Suisse wrote in a note to clients that cites OfficeMax, Office Depot and Staples.