Office Depot's Questionable Analyst Call Program

Office Depot (NYSE:ODP) has run into some rather stupid problems. The allegations are that members of the Investor Relations Staff pro-actively made phone calls to sell side analysts approximately one week before the company filed an 8K warning of bad news.

The allegations continue with the proposition that as a result of these individual phone calls analysts concluded earnings will be worse than predicted. This resulted in precipitous selling activity as brokers sold ODP shares and or purchased puts. The SEC apparently is involved and the fiasco continues to unfold much like peeling an onion.

At this point no one is disputing that the calls were made. Hard facts conclude that most if not all analysts immediately concluded the absolute need to sell.Considering that the quarter end was only at most two weeks away, any analyst or informed observer would know that most of the numbers are in.

In an age and day of computerized inventory with bar code scanning and sophisticated cash registers, you have to believe that Office Depot knows where they stand probably on an hourly basis; certainly on a daily basis.

Some points to consider are: What is Office Depot’s understanding of Reg. FD and the Quiet Period? Were they playing with the 30 day time frame? When was the decision made to announce earnings? Was there a script that had been pre-approved? If so by whom? Was the script deviated from? Were senior officers and board members aware that this function was being conducted?

If there was no new news why were the calls made in the first place? Does Office Depot Investor Relations Staff and or senior officers consider one on one phone calls to analysts to be exempt from quiet period regulations or REG FD?

From the analyst point of view your phone rings and a staffer from Office Depot’s Investor Relations staff is calling to point out something. In the last analyst conference call there was much concern over margins. Analysts are paid to figure things out. What is the context of the news that was presented to the analysts. In any event what is their legal obligation? They must all be aware of the root causes for Reg. FD and Sarbannes Oxley. What was going through their heads?

It would appear that they all complied with their employment obligations and raised the alarm internally. But who got the news. Were all clients in receipt of the same information or was their favouritism? If you are a client with that analyst’s firm and did not get the news quickly ...well I guess we are headed to a class action here. Investors who lost money may be inclined to move their account to the other guy.

This is all bread and butter stuff. It does not appear that there is a new frontier here. The various in house counsel are probably ripping their hair out of their collective heads. I know two things for sure. Firstly I am glad I do not work in the Investor Relations department of Office Depot. Secondly I am glad I am not an analyst covering this stock.

On June 28 the company filed an 8K which spoke to the anticipated bad news. It anticipates releasing Q2 information on July 26. At best Office Depot looks unprofessional and inept. If they can shake off the legalities there will be a lingering doubt about their ability to communicate.

Office Depot on their investor relations section of the corporate web site kindly lists the analyst they believe are following them:

A. G. Edwards & Sons, Inc. Brian S. Postol
Bear, Stearns & Co. Chris Horvers
Buckingham Research Daniel T. Binder
Citigroup Investment Research Bill Sims
Credit Suisse First Boston Gary Balter
Deutsche Banc North America Michael Baker
FTN Midwest Research Daryl Boehringer
Goldman Sachs & Co. Matthew J. Fassler
JP Morgan Steve Chick
Lehman Brothers Brad Thomas
Merrill Lynch Danielle E. Fox
Morgan Stanley Armando Lopez
Piper Jaffray Mitch Kaiser
Prudential Equity Group, LLC Mark J. Rowen
Sanford C. Bernstein & Co. Colin McGranahan
William Blair Jack Murphy