Lawsuit Challenges Activist Fund's Influence in Merger

Apr 6 2015 | 5:00pm ET

A lawsuit in Palm Beach County, Florida alleges that Office Depot executives failed to negotiate the best sale price for the firm in its sale to Staples due to pressure by activist hedge fund Starboard Value.

"This merger was fraught with conflict of interest based on the actions of [an] activist shareholder," said Attorney Stuart Davidson, who filed the suit on behalf of two Office Depot shareholders.

The complaint, which will be heard on April 30, argues that Office Depot's $6.3 billion sale to Staples was influenced by Starboard in a manner that made it impossible for any other competitive offer to be considered. 

Lawyers allege that Starboard influence was central to the deal because it owns 10% of Office Depot and 6% of Staples. 

Defendants listed in the suit include Staples, Office Depot, its CEO Roland Smith and its individual board of directors.

"[Office Depot executives] breached their fiduciary duty to maximize shareholder value by surrendering their independence to Starboard and agreeing to Starboard’s demand that the board negotiate exclusively with Staples and refuse to conduct any pre-signing market check to ascertain whether there were any other buyers – financial or strategic – who might offer a higher value to the company’s shareholders," the complaint reads.

This isn't the only case pending over the merger between the office retailers. A report by Office Depot filed last month with the SEC shows lawsuits are emerging over the merger across the country. Nine lawsuits have been filed in Delaware; two lawsuits were filed in Florida. 

"Staples, Office Depot, and the Office Depot board of directors believe that the claims asserted in these suits are without merit and intend to defend against them vigorously," the regulatory filing states.

Davidson's lawsuit faces a key uphill challenge. In February, when the firms announced the merger, Office Depot altered its corporate bylaws to prevent shareholders from filing lawsuits challenging the the merger from doing so in anywhere other than Florida. Though the retail giant is based in Boca Raton, the firm is incorporated in Delaware.

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