Shares of Staples Inc. edged up slightly Friday following a report that several private equity firms are considering making bids for the Framingham office supply giant, according to several investors with knowledge of the matter.
Boston’s Bain Capital and Thomas H. Lee are among those contemplating a deal with Staples — which has struggled with lackluster performance over the last year — said the sources.
Some banks have suggested buyout firms would pay a premium for Staples’ delivery business, while placing a much lower value on its large chain of retail stores, said the investors, who requested anonymity because the discussions are preliminary.
The company’s North America delivery segment, which focuses on providing supplies directly to businesses, and its US retail operations each made up roughly 40 percent of revenues, according to Staples’ 2011 annual report. Talks have included proposals to break up the company into parts.
Staples officials and the private equity firms that are considering making offers declined to comment.
‘I’m not surprised at all to hear that private equity firms are sniffing around at Staples.’
The retailer is an attractive target for a leveraged buyout because it is the market leader with a talented management team, and the business generates strong free cash flow, according to analysts. But the company has taken a beating on Wall Street after reporting in August that quarterly earnings dropped 32 percent and slashing earnings projections for the year. Shares of Staples stock rose 2 percent on Friday to close at $12.21 on the Nasdaq exchange, but are still trading at nearly half their January 2011 level.
“I’m not surprised at all to hear that private equity firms are sniffing around at Staples,” said Anthony Chukumba, a retail analyst at BB&T Capital Markets in New York.
Staples, in the face of a weak economic recovery in the United States and deteriorating conditions in Europe, has repeatedly missed earnings expectations. Going private would allow the company to make needed changes, such as reducing its US footprint by closing some stores and revamping international operations, away from the scrutiny of Wall Street.
A takeover could be valued at about $13 billion and probably would need investments from two or three private equity firms to get the deal done, according to Chukumba, who released a detailed report on Friday about why a buyout makes sense for Staples.
Takeover talks are in the early stages, and an offer would not be made for Staples until later this year so the private equity firms could line up financing and avoid getting tangled in the presidential election campaign, according to the investors with knowledge of the preliminary talks. Republican presidential nominee Mitt Romney, who once served as chief executive at Bain, describes Staples as one of his top business achievements. Bain Capital money helped launch the Staples brand more than 25 years ago.
It is not unusual for the Boston buyout firm to take a second shot at companies it owned before they went public. In 2008, Bain spent $1.3 billion to take private Bright Horizons Family Solutions Inc., a Watertown day-care company for employers. Bain helped fund Bright Horizons in 1986, when both firms were starting out.
Last year, Bain bought back Physio-Control, a maker of emergency heart defibrillators that the investment firm previously owned and took public in 1995 in one of its most successful deals. The firm agreed to pay $487 million to take Physio-Control back from medical device maker Medtronic Inc. of Minneapolis. In 1994, when Bain last invested in the Redmond, Wash., company, it put up about $8 million in equity. Sixteen months later, it reaped more than $176 million in Physio-Control’s initial public offering.
Correction: An earlier version of this story incorrectly spelled analyst Anthony Chukumba’s name.