Shareholder turns screw on ‘Max



On Monday, fund management company K Capital released a letter to the OfficeMax board claiming that its strategic initiatives of the last few months have destroyed value, while directors have not held management responsible.


"Even with a new CEO, there is little indication that things have changed," said managing director of K Capital, Brian Steck, in the letter. "The company continues to under-perform, shareholders’ questions remain unanswered, and corporate governance decisions continue to foster entrenchment rather than accountability."


The shareholder, which owns 8.6 per cent of Max’s stock, seeks to launch a public campaign against OfficeMax as a last ditch attempt to get the retailer to either boost value or sell up. It makes calls for the company to formulate a detailed turnaround plan with performance benchmarks over time; create a committee of independent board members to assess the company’s strategic value; and remove a ‘poison pill’, the tactic of making its stock less appealing to the acquired company in the hope of blocking an unwanted takeover.


OfficeMax declined to comment on the issue.


A spokesperson for a previous shareholder, who has now sold its stock, told OPI+ that he believes K Capital is doing the right thing in publicly scolding the retailer. "The business is problematic and shareholders are outraged," he claimed. "OfficeMax keeps announcing plans to improve levels of productivity – such as the roll-out of a new store design and improvements to its delivery services – but nothing ever comes to fruition."


However, speaking to OPI+ following announcement of the new store designs, Ryan Vero, chief merchandising officer at OfficeMax, was confident that a new era was about to be heralded at the retailer. He said he believes the new store concept will "result in customers visiting stores more often and shopping longer while they are there".


He added: "We remain committed to our relentless focus on customer satisfaction, to creating meaningful opportunities for our associates and to building long-term value for our investors."

Meanwhile, Dan Binder, SVP at Buckingham Research, says that although shareholders are screaming out about share value because they want OfficeMax to sell out to Staples and Office Depot, the interest is not there. "According to the Wall Street mentality, some of the company’s parts are worth more today on a sale, but there are not any immediate buyers," he told OPI+.

"Depot might be interested in the delivery business, but the retail side is too complicated," he said. "There is too much overlap and a lot of mediocre real estate. If Staples or Depot bought any stores they would have to close some down. Also the Federal Trade Commission wouldn’t allow one retailer to buy all the stores so the outlets would have to be broken up between them. Staples would want stores in Chicago and the mid west, and Depot would want the north east, so they would be helping each other. Staples and Depot both have great organic growth stories at the moment so why would they take stores? I don’t think there will be any immediate buyers, although it is always possible that a private equity fund may be interested."


So where does Binder believe OfficeMax is headed? "It will be a tough operation to turn around," he said. "It will continue to bleed market share and will continue to struggle.


"If shareholders get impatient, they may well say ‘to hell with it’ and dump the stock’, but there is no obvious resolution."