EB: Life after Odland



Did he fall? Was he pushed? A bit of both? In the end, of course, the exact reasons for Steve Odland’s imminent departure from Office Depot don’t really matter, but we all like a bit of speculation now and again.


Press reports in the US have suggested that Odland’s resignation is linked to the recent SEC ruling that saw the Depot CEO and his former CFO Pat McKay agree to pay $50,000 penalties for illegally giving financial analysts advanced warning of worse-than-expected quarterly results in 2007.


In reality, Depot has known about the proposed SEC agreement for months, and we would probably have seen Odland leave the company sooner if this were the main reason for his departure. That, and the fact that he is not severing ties with the company by staying on in a consultancy role until the end of December, suggests a far less fractious exit.


In addition, in its 8-K filing dated 24 October, Depot stated that Odland’s resignation was "not due to any disagreement with the company". This could partly be corporate hot air that ensures that Odland walks away with his full severance package (more than $10 million in cash and a shed full of stock options to vest), but also suggests that the timing of the SEC ruling and Odland’s announcement was more of a coincidence.


Something that is perhaps more relevant is the date of 14 October, which is the first anniversary of the change of control of Office Depot following BC Partners’ private equity investment. It could be that BC Partners gave Odland a 12-month grace period to prove himself before making a decision on his future. In that time Depot has continued to be plagued by overcharging allegations and multi-million dollar refunds in its Business Solutions Division (BSD), has lost the $600 million US Communities contract, had its membership of the Better Business Bureau revoked (although later re-instated), and was charged with improper conduct by the SEC – not exactly a glowing report.


A possible scenario, therefore, would be that BC Partners has now asked Odland to step aside – in the guise of a "resignation" – and they’ll now look to bring in ‘their own man’.


What kind of CEO will they go for?


It would be a surprise if they chose an internal candidate. Odland’s two most senior lieutenants, BSD President Steve Schmidt and International President Charlie Brown, are unlikely choices – the former due to all the shortcomings at BSD, while Brown has been at Depot for 12 years now and BC is probably looking to bring in some fresh blood.


Of course, the profile of the new CEO will depend a lot on BC’s own strategic objectives for its Depot investment. Its break even point is around the $5 per share mark, which is roughly where the share price is right now. Assuming a three-year private equity investment cycle, BC would be looking to cash in its investment in 18 months to two years’ time. That would mean bringing in someone with proven turnaround and profit-generating experience, ironically a Steve Odland pre-Depot-type candidate.


A look at recent CEO resignations throws the name of Jim Fogarty into the ring. On 13 October, Fogarty resigned unexpectedly as CEO of retailer Charming Shoppes after just 18 months in the job, leaving "to pursue other interests" – which usually means being tapped up for a better-paid CEO job elsewhere.


Could that be Office Depot? Fogarty is known as a turnaround expert after a 15-year stint at top turnaround firm Alvarez & Marsal, and has retail/consumer goods experience with Charming Shoppes and Levi Strauss, the latter as CFO. If not Fogarty himself, then someone with a similar background would not be a major surprise.


That would, almost certainly, lead to a further round of cost-cutting measures and possibly further store closures and asset sales. The kind of thing that is good for short-term shareholder value, but questionable as a viable long-term strategy.


Unless, of course, the long-term strategy is the oft-speculated merger with OfficeMax. Could we have a scenario that sees two companies both with new CEOs who have an 18-month or so mandate to pave the way towards a merger or buyout?


Possibly, although new ‘Max CEO Ravi Saligram does not have a reputation as a turnaround merchant.


What will be Steve Odland’s legacy at Office Depot?


In the early, heady days of 2005-2006 everything looked rosy for the then new Depot CEO. Brought in from car parts retailer and distributor AutoZone with a reputation as a cost-cutter, Depot’s share price rocketed to an all-time high of $46.50 and Odland was the darling of Wall Street and the company’s shareholders.


Since then, however, it has been pretty much all downhill, with industry observers wondering if Odland was leading some kind of charmed existence to stay in the job for as long as he did.


Of course, the economy didn’t help. Exposure to the California and Florida markets didn’t help. But neither did an ill-timed stock buyback programme (when Depot’s shares were trading in the high $30s) that stripped the company’s balance sheet of over $1 billion in cash and left it vulnerable during the height of the credit crisis in late 2008 and early 2009. And nor did the bungled acquisition of $300 million mega-dealer Allied in 2006 that saw sales reps and customers leave for rivals in their droves.


At the same time, market leader Staples continued to steer a steady course under the expert guidance of Ron Sargent despite the economic climate, taking the Corporate Express acquisition in its stride and leaving Depot and ‘Max trailing in its wake.


At the end of the day, store closures, a turnaround plan that seemed to go on forever, a drain of talent from the company, shares trading at around a tenth of their value compared to 2006, contract overcharging: these will be, perhaps, what Steve Odland’s watch at Office Depot is most remembered for.