Staples, Inc. (SPLS) Pops on Merger Clearance, Rattling Skeptics

The European Commission has approved Staples, Inc.'s (SPLS) merger with Office Depot Inc (ODP)

by Alex Eppstein

Published on Feb 10, 2016 at 11:58 AM
Updated on Jun 24, 2020 at 10:16 AM

Staples, Inc. (NASDAQ:SPLS) cleared a major hurdle in its quest to acquire rival retailer Office Depot Inc (NASDAQ:ODP). Specifically, the European Commission gave a green light to the $6.3 billion deal, contingent on ODP selling some of its European operations. As such, SPLS was last seen 2% higher at $8.57 -- to the likely dismay of options traders -- while ODP has soared 3.5% to trade at $5.09.

This represents a change of pace for Staples, which has moved steadily lower throughout the past 12 months. Compared to this time last year, the shares have surrendered roughly half of their value. What's more, the stock hit a 13-year low of $8.29 during the Jan. 20 broad-market bloodshed.

This downward trend hasn't been lost on option traders, who have been placing bearish bets over bullish at an accelerated clip in recent weeks. Specifically, at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SPLS has racked up a 10-day put/call volume ratio of 1.73 -- outstripping 92% of comparable readings taken in the prior year.

Echoing this pessimism is SPLS' Schaeffer's put/call open interest ratio (SOIR) of 0.32, which ranks in the high 83rd annual percentile. This means put open interest is historically elevated relative to call open interest, when looking at options with a shelf-life of three months or less.

Outside of the options pits, expectations are low, too. Of the 11 analysts tracking SPLS, nine have handed out a "hold" or "sell" assessment. Similarly, short interest has been shooting higher, increasing over 35% during the last two reporting periods to nearly 31 million shares. Suffice it to say, today's news may have these skeptics on edge.

Returning to the aforementioned development, things are certainly shaping up well for Staples, Inc. (NASDAQ:SPLS) across the pond. However, the merger's future is far from guaranteed in the U.S., after the Federal Trade Commission (FTC) rejected it in December on antitrust concerns.

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