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Office suppliers up on report of possible buyout

NEW YORK (AP) -- Shares of office suppliers rose Friday on speculation over a possible bid from private equity firms for the Staples chain.

Late Thursday, Fortune magazine reported that Bain Capital and other private equity firms were in early talks with Staples, citing unnamed sources.

Staples declined to comment and Bain Capital could not immediately be reached.

But investors did not wait, buying into Staples and its rivals in a bet on which chain might actually be targeted for a buyout.

The office supply sector was hard hit during the recession as both consumers and businesses cut back on spending. It has been a slow recovery as well. American shoppers are also increasingly likely to buy office supplies online or at discount stores.

Net income tumbled 32 percent during the second quarter at Staples Inc. partly because of disappointing sales in North America and weakness in Europe.

But Staples did not suffer as badly as its rivals during the downturn, and there was some skepticism that it would be the first choice in the sector for private equity.

"Although the company has a strong management team and a good brand, this is definitely not an attractive return/deal for (private equity or banks) who will have to invest over $10 billion in capital," wrote Janney Capital Markets analyst David Strasser.

Strasser said returns would not be great enough to warrant that kind of investment.

The potential for private equity's arrival, however, sent shares of Staples Inc., based in Framingham, Mass., up 4.2 percent, or 50 cents, to $12.46 in midday trading. The stock had fallen 14 percent since the beginning of the year.

OfficeMax, based in Naperville, Ill., jumped 12.4 percent, or 88 cents, to $7.99. That stock had already been up 57 percent since the year started.

Office Depot Inc., based in Boca Raton, Fla., rose 5.4 percent, or 13 cents, to $2.49. The stock has risen 10 percent this year.