Office Depot's parent delivers retail M&A a blow by rejecting offers

Office Depot and OfficeMax parent, the ODP Corporation, has decided not to sell or spin off its consumer division — putting the blame on market conditions.

Why it matters: The announcement is another blow to retail M&A activity as deals for Kohl's and Walgreens' U.K. pharmacy division Boots hang in the balance.

Stock market volatility has cast uncertainty on valuations, and buyers and sellers are in price discovery mode. Making matters worse is the specter of a recession, while debt financing becomes more expensive due to rising interest rates.

Flashback: A year and a half ago ODP rejected a $40 per share offer for the entire company from competitor Staples, owned by Sycamore Partners. (ODP is now at $31.)

• ODP said at the time that it'd be open to combining its consumer division (the Office Depot and OfficeMax retail chains) with Staples.

Details: This time around, as part of a strategic review ODP weighed nonbinding offers for its consumer division — one of which came from Staples.

• In addition, it looked at separating into two publicly traded companies, one consisting of its declining consumer business and the other, its B2B operations.
• Macroeconomic challenges and the loss of supply chain synergies stood in the way.

Yes, but: "[T]he completion of our internal reorganization will make such a potential separation substantially simpler should the company determine to resume the separation process following a change of market conditions in the future," said Joseph Vassalluzzo, ODP's chair, in a statement.

The bottom line: Even if ODP had economic tailwinds, any deal would still have had challenges given the heated competition in the office supply space from the likes of Amazon and Walmart.