ODP Corporation - Ultrathink Analysis

A deep philosophical examination through the lens of Buffett, Munger, and Klarman

The Real Question

What problem are we actually solving by investing in ODP?

The surface question: Can a declining office supplies company successfully pivot to B2B distribution and supply chain services before the legacy business dies?

The deeper question: Is there ever a price low enough to justify buying a melting ice cube?

This is fundamentally a question about time. ODP is a race between two forces:

1. The decay function - Legacy retail and B2B supplies shrinking 8-10% annually
2. The growth function - Veyer third-party revenue growing 30% but from near-zero base

Simple math: Veyer would need to reach ~$1.5B in revenue just to offset one year of legacy decline. At current growth rates, that's 12+ years away. The ice cube will have melted long before.

Buffett would ask: "Would I want to own 100% of this business forever?" The answer is clearly no - you'd be fighting structural decline every single day. This fails the fundamental test.

Hidden Assumptions

What assumptions is the market making that might be wrong?

Assumption 1: Decline rates are predictable

The market assumes ODP will decline 7-10% annually. But what if there's a non-linear inflection point? What if Amazon Business hits critical mass and suddenly captures 20%+ share in a single year? The decline could accelerate dramatically. We're assuming smooth decay when regime changes are possible.

Assumption 2: Buybacks are value-creating

Management has bought back $963M in stock. The implicit assumption is this was good capital allocation. But consider: they bought stock at average prices of ~$40-50 over 2021-2023. The stock is now $28. They destroyed capital. The buybacks masked the fundamental decline in per-share metrics while consuming all free cash flow and increasing leverage. This wasn't shareholder-friendly - it was financial engineering that made the situation look better than it was.

Assumption 3: Veyer is differentiated

Management talks about Veyer like it's a unique asset. But Amazon operates the most sophisticated logistics network in history. UPS, FedEx, and dozens of regional players compete in fulfillment. What exactly makes ODP's 8 million square feet special? The assumption of differentiation may be management narrative, not reality.

Assumption 4: Einhorn knows something we don't

Superinvestors are human. Einhorn's position was established when the thesis likely looked different. His Q3 2025 filing doesn't show ODP in the top 5 holdings - suggesting he may have reduced or exited. Following guru positions without understanding their current thinking is a recipe for disaster.

The Contrarian View

What would have to be true for the bears to be right?

The bears are probably right if:

1. Office supplies are terminal, not cyclical - The demand destruction from digitization, cloud storage, electronic signatures, and remote work is permanent. This isn't a recession - it's a secular shift. The bear case doesn't require anything dramatic to happen; it just requires current trends to continue.

2. Amazon Business becomes truly competitive - Amazon is already the largest B2B e-commerce platform. If they decide to aggressively pursue ODP's enterprise customers with lower prices and better technology, ODP has no moat to defend with.

3. Management is selling a dream - Every declining company talks about "pivots" and "transformation." Sears talked about it. Kodak talked about it. The pattern is familiar: legacy companies promise digital reinvention while the core business crumbles. Veyer's $56M in third-party revenue is 0.8% of total company revenue. It's a rounding error being marketed as a strategy.

4. The math doesn't work - To replace $700M of annual revenue decline, Veyer would need to add $700M in new business. At 30% growth from $56M base, it would take 10 years to reach $700M. By then, the legacy business will have shrunk by another $4-5B. The growth curve can't outrun the decay curve.

The uncomfortable truth: The bear case requires nothing exceptional - just extrapolation of current trends. The bull case requires exceptional execution, market share gains against Amazon, and a successful transformation that few retailers have ever achieved.

Simplest Thesis

The investment case in one elegant sentence:

"ODP is a melting ice cube attempting to grow a flower in the desert - both activities are possible, but neither generates adequate returns on capital to justify investment at current prices."

Why This Opportunity Exists

The deeper truth about why this mispricing might persist or correct.

Why it appears cheap:

• 1.0x book value looks cheap for any company
• Einhorn's involvement created a "smart money" signal
• Aggressive buybacks made per-share metrics look reasonable
• Management narrative around B2B pivot creates hope

Why it might stay cheap or get cheaper:

• Book value is misleading when assets are depreciating in value
• Einhorn may have already reduced/exited his position
• Buybacks have consumed all financial flexibility
• Hope is not a strategy; execution is what matters

The deeper truth: This opportunity exists because the market is uncertain about the terminal value. Is ODP worth something (B2B business, Veyer potential, real estate) or nothing (bankruptcy, liquidation)? At 1x book, the market is essentially saying "we don't know."

This uncertainty should attract value investors - we profit from uncertainty. But uncertainty without margin of safety is speculation, not investment. At $28, there's no margin of safety. At $15, there might be enough to compensate for the uncertainty.

What Would Change My Mind

The specific evidence that would invalidate my bearish thesis:

1. Two consecutive quarters of revenue STABILITY (not decline) - Not improvement, just stability. If they can stop the bleeding, the multiple re-rates.

2. Veyer third-party revenue reaching $200M annually - This would prove the pivot thesis is real, not narrative. It would still be small but would demonstrate escape velocity.

3. FCF returning to $150M+ - Cash generation is the ultimate proof of business quality. If FCF recovers, the thesis changes.

4. A credible strategic announcement for retail - Either sell it, spin it, or close it. The current "optimize the footprint" is death by a thousand cuts.

5. Price below $15 - Below 0.55x book, the margin of safety might compensate for the risks. Value investing works when the downside is limited, even if upside is uncertain.

What would NOT change my mind:

• Management promises about the future
• New contract announcements (until reflected in revenue)
• Additional buybacks (these are distractions)
• Analyst upgrades or downgrades

The Soul of This Business

What makes this company's competitive position inevitable or fragile?

The soul of ODP is distribution - moving physical products from suppliers to businesses efficiently. This has been the core competency for 40 years.

But the soul is threatened because:

1. The products being distributed are disappearing - Paper, ink, binders, folders - all declining as work goes digital. You can't distribute what people don't need.

2. The distribution advantage is eroding - Amazon, with unlimited capital and technology, is building the most efficient distribution network in history. ODP's infrastructure advantage is shrinking every day.

3. The customer relationships are commoditizing - B2B procurement is increasingly about price and convenience, not relationships. That plays to Amazon's strengths.

The fragility is this: ODP's competitive position depends on customers valuing service and relationships over price and convenience. Every year, fewer customers make that choice. The soul of the business - relationships and service - is being rendered obsolete by technology and consumer preference shifts.

Buffett's newspaper test: If you read in the newspaper that ODP went bankrupt, would you be surprised? Honestly, no. If you read that they successfully transformed into a supply chain powerhouse, would you be surprised? Yes, very.

That asymmetry tells you everything you need to know.

Final Reflection

Munger teaches us to invert - to think about how things can fail rather than succeed. With ODP:

• The ways it can fail are numerous, high-probability, and structural
• The ways it can succeed are narrow, low-probability, and require exceptional execution
• The current price offers no compensation for this asymmetry

The wisdom here is patience. ODP might become interesting at $15. It might become interesting if Veyer proves itself. It might become interesting if retail is divested.

But today, at $28, with no margin of safety, deteriorating fundamentals, and a narrowing moat?

"The stock market is a device for transferring money from the impatient to the patient." - Buffett

Let others chase the Einhorn signal. Let others hope for the pivot. The patient investor waits for prices that compensate for uncertainty - and $28 isn't that price.

The position today: None. The watch continues.

"The best thing that can happen to us is when a great company gets into temporary trouble... We want to buy them when they're on the operating table." - Buffett

ODP isn't on the operating table - it's in hospice care. There's a difference.