Two of the big retailers of office supplies, Office Depot and OfficeMax, are hoping that a merger can help protect profitability in the age of the Internet and bulk discounters. The companies are in talks “to combine in an all-stock deal that may be announced as soon as this week, a person briefed on the matter said on Monday,†DealBook’s Michael J. de la Merced reports. The talks, while at an advanced stage, may still fall apart, this person cautioned.
A deal would unite the two retailers after years of struggling to compete with the likes of Amazon.com and Costco, which can undercut their prices. Combined, Office Depot and OfficeMax reported about $4.4 billion in revenue for the third quarter last year; by comparison, Staples reported $6.4 billion in sales for the same period, Mr. de la Merced reports. The companies are also tuck with a burden of real estate: Office Depot operated about 1,675 stores worldwide at the end of the third quarter, while OfficeMax had 960 outlets.
Analysts and investors have argued that a merger of Office Depot and OfficeMax would make sense as a way to cut costs and eliminate overcapacity. Office Depot has also been under pressure from Starboard Value, an activist hedge fund that holds a 14.8 percent stake, which sent a letter to the company’s board in the fall calling for a greater focus on high-margin businesses like copy and print services. “Stock in the two companies has risen significantly over the last year, largely on speculation that a union between the two was in the works. OfficeMax’s shares have jumped 87 percent, closing on Friday at $10.75; those in Office Depot have climbed 41 percent, closing on Friday at $4.59.â€
NEW STRATEGY IN GOING AFTER WALL STREET WRONGDOING  | The guilty pleas the government recently secured from units of big banks represent a new approach from the usual fines and reforms. “Prosecutors now aim to apply the approach broadly to financial fraud cases, according to officials involved in the investigations,†DealBook’s Ben Protess reports. “Lawyers for several big banks, who spoke on the condition of anonymity, said they were already adjusting their defenses and urging banks to fire employees suspected of wrongdoing in the hope of appeasing authorities.â€
The new strategy first emerged in the settlements with UBS and the Royal Bank of Scotland over accusations of manipulating interest rates, as the banks’ Japanese subsidiaries pleaded guilty to felony wire fraud. But critics ask whether the shift “amounts to a symbolic reprimand rather than a sweeping rebuke.†The guilty pleas from foreign susidiaries have “inflicted reputational damage but little else,†Mr. Protess writes.
Still, “the Justice Department plans to continue the campaign as it pursues guilty pleas from other bank subsidiaries suspected of reporting false interest rates, according to the prosecutors and the lawyers who requested anonymity to discuss the cases. Authorities are scrutinizing Citigroup, whose Japanese unit is suspected of rate manipulation, and prosecutors recently accused one former trader there of colluding with other banks in a vast rate-rigging conspiracy. Prosecutors want the rate-rigging investigation to serve as a template for other financial fraud cases. Two officials, who spoke on condition of anonymity, described a plan to eventually wring an admission of guilt from an entire bank.â€
A REVIVAL FOR RATTNER  | Once a successful financier and a government insider, Steven L. Rattner fe! ll from g! race after paying more than $16 million to settle civil cases accusing him of using “pay to play†practices while raising money from a New York State pension fund. “Now, two years later, Mr. Rattner is lunching all over town. And, in truth, he may have never stopped,†Andrew Ross Sorkin writes in the DealBook column. “As Mr. Rattner sat across from me in Midtown Manhattan two weeks ago, his re-emergence as power magnate was well under way. He is the overseer of Mayor Michael R. Bloomberg’s fortune of billions of dollars â€" you could call Mr. Rattner a money manager but that doesn’t capture the scope of it.â€
Mr. Rattner said recovering from the scandal “was a bit like the half life of a radioactive isotope. Every few months the intensity of what happened seemed to go down by half.†Mr. Sorkin writes: “In a city where powerful figures are dropped at the whiff of truble â€" and rarely return to positions of significant influence despite efforts at comebacks â€" Mr. Rattner’s narrative of a meteoric rise to embarrassing scandal and back again is notable. His re-emergence may also be a telling commentary about the way the nation’s elite flock to people with power â€" and those with powerful friends.â€
ON THE AGENDA  | Dell, which has a controversial buyout offer on the table, reports earnings on Tuesday evening, as does Herbalife, the nutritional supplements company that has become a venue for a dispute among big-name investors. The billionaire financier Kenneth G. Langone is scheduled to appear on CNBC starting at 7 a.m. A judge in Manhattan is scheduled to hear arguments in Greenlight Capital’s eff! ort to pr! event Apple from limiting its ability to issue preferred stock.
STRIVING FOR GREATER COORDINATION AT MORGAN STANLEY  | The traders and investment bankers of Morgan Stanley traditionally have wanted little to do with the financial advisers in the company’s retail business. But “since Morgan Stanley moved to acquire control of the Smith Barney brokerage business from Citigroup in 2009, the balance of power has shifted to wealth management, which now accounts for almost 52 percent of the company’s earnings, up from roughly 16 percent in 2006,†DealBook’s Susanne Craig writes.
Gregory J. Fleming, head of the brokerage business, and Colm Kelleher, who runs sales and trading and investment banking, “have been under pressure from shareholders to coax greater profits from he low-margin brokerage business by finding ways for retail and investment banking to work better together. The two men are said to have a good working relationship, leading to renewed optimism that the company can finally find synergies among its various divisions. That is a change from a few months ago, when cooperation was difficult, according to employees at the company, because of personality conflicts between Mr. Kelleher and the investment banker Paul Taubman, who were the two co-heads of the institutional securities business.â€
Orix of Japan to Buy Dutch Asset Manager  | The Orix Corporation said the acquisition of a 90 percent stake in the Robeco Group, which is based in the Netherlands and has 189 bill! ion euros! in assets under management, represented its “most significant strategic acquisition to date.†DealBook Â'
TNT Express to Sell Assets after Failed U.P.S. Bid  | After European regulators blocked United Parcel Service’s $6.9 billion takeover offer for TNT Express, the Dutch shipping company said on Monday that it was looking to sell its businesses in Brazil and China. DealBook Â'
Investors in Heinz Appear Receptive to Takeover Offer  |Â
REUTERS
Sale of Bumi Stake Complicates Rothschild’s Bid for Control  | Reuters reports: “A key Indonesian investor has sold his 10 percent holding in Bumi only days before a key vote on the miner’s future, threatening Nat Rothschild’s hopes of victory in the battle to win control of the company.†REUTERS
Shareholders of Greek Bank Approve Buyout Offer  | Reuters reports: “A large majority of shareholders at Greek lender Eurobank have accepted an all-share buyout offer from larger rival National Bank, clearing the way for a merger to form the country’s biggest lender.†REUTERS
Basing Decisions on More Than Just Data  | The chief executive of a large bank recently decided against pulling out of Italy because he “didn’t want Italians to think of the company as a fair-weather friend,†David Brooks, a columnist for The New York Times, writes. NEW YORK TIMES
Bank of America’s Retirement Unit Gets a Lift From Commercial Bank  | Bank of America “attracted record new assets last year to its unit servicing retirement and other employee-benefit plans as it cross-sold products throgh the commercial bank,†Bloomberg News reports. BLOOMBERG NEWS
How Different Is the New Strategy at Barclays  |Â
BLOOMBERG VIEW
Japanese Trading Firms Look to Expand in Water Business  |Â
WALL STREET JOURNAL
Billabong In! vestors R! emain Skeptical of Buyout Offers  | “Billabong closed yesterday 12 percent below the latest offers, the third-widest gap among similar-sized deals in developed Asia-Pacific nations, according to data compiled by Bloomberg,†Bloomberg News reports. BLOOMBERG NEWS
Standard Chartered Scouts for Private Equity Deals in Zimbabwe  |Â
REUTERS
A Tax Strategy Favored by Hedge Fund Managers  | Bloomberg News reports: “A decade after the U.S. Internal Revenue Service threatened to crack down on what it said were abuses by hedge-fund backed reinsurers, more high-profile money managers are setting up shop in tax havens.†BLOOMBERG NEWS
Loeb Said to Have Sold Part of Herbalife Position  | Daniel S. Loeb, the head of Third Point, began selling shares of Herbalife “a few weeks ago and has continued to trade around the position,†CNBC reports, citing an unidentified person. Mr. Loeb had announced a long position in Herbalife after another hedge fund manager, William A. Ackman, said he was betting against it. CNBC
For Investing in China, an Alternative Source of Data  | A lawyer named Leland Miller has developed the “China Beige Book,†a collection of poll results meant to provide investors with a reliable insight into China’s economy, The New Yorker writes. NEW YORKER
In Europe, Mounting Debt May Push Companies to Public Markets  | European companies are considering public stock offerings as part of broader plan to pay down debt and bolster profit. DealBook Â'
Silicon Valley Has Gambling in Its Sights  | Online game companies currently are aiming their gambling efforts at overseas markets, but they “have their eye on the ultimate prize: the rich American market, where most types of real-money online wagers have been cleared by the Justice Department,†The New York Times writes. NEW YORK TIMES
For a Group of Entrepreneurs, Meteor Is Vindication  |Â
NEW YORK TIMES
Reader’s Digest Files for Bankruptcy, Again  | The magazine’s parent company filed for Chapter 11 protection in order to cut down the debt that has plagued the publication for years. DealBook Â'
Novartis Retreats on Pay Package for Departing Chairman  | The Swiss drug maker Novartis, which had said it would pay its outgoing chairman about $78 million to ensure he did not share knowledge with competitors, decided to scrap the plan in the face of criticism, Reuters reports. REUTERS
Draghi Looks to Quiet Talk of Currency War  | “Most of the exchange rate movements that we have seen were not explicitly targeted; they were the result of domestic macroeconomic policies meant to boost the economy,†Mario Draghi, president of the European Central Bank, said on Monday. ! NEW YORK TIMES
A ‘Bailout’ Behind Closed Doors  | Recent court filings shed light on a deal struck last July between the New York Fed and Bank of America, in which the New York Fed “agreed to give away what may be billions of dollars in potential legal claims,†Gretchen Morgenson writes in The New York Times. NEW YORK TIMES
How Second Mortgages Complicate a Federal Settlement  | Elizabeth M. Lynch, a lawyer at MFY Legal Services, writes in a column in The New York Times that a recent settlement with big banks “is far too modest to be a credible deterrent to reckless foreclosure practices.†NEW YORK TIMES
The Prosecutor Who Polices Wall Street  | The Globe and Mail profiles Preet Bharara, the United States attorney in Manhattan, writing: “The man who has sent more financiers to jail than anyone else since the 1980s is disarmingly funny. He also has a mild addiction to diet soda and an innate urge to interrogate.†GLOBE AND MAIL
