FTC Blocks Staples-Office Depot Merger

Staples Inc., parent company of Top 40 distributor Staples Promotional Products (asi/120601), and Office Depot will contest a lawsuit filed by the Federal Trade Commission (FTC) that blocks the merger of the two office supply giants.

After months of evaluation, the FTC determined that the $6.3 billion merger of North America’s two largest office supply companies would create an anti-competitive environment. In a statement, the government agency expressed concern that the merger would lead to increased prices and a decline in service levels for the business-to-business market of supplying large companies with office supplies. It noted that the market is less competitive than the retail market, and that other vendors would not be able to match Staples’ and Office Depot’s nationwide distribution and parcel of services.

“The Commission has reason to believe that the proposed merger between Staples and Office Depot is likely to eliminate beneficial competition that large companies rely on to reduce the costs of office supplies,” said FTC Chairwoman Edith Ramirez.

In a joint statement, both Staples and Office Depot challenged that notion. “The combined company would generate significant savings, and we’re committed to investing savings in lower prices for all customers,” said Ron Sargent, chairman and CEO of Staples. “We’ll also use the savings to continue to invest in our people, technology and customer service.”

The companies said that the FTC’s decision was based on “a flawed analysis and misunderstanding of the intense competitive landscape,” and highlighted the FTC’s previous approval of Office Depot’s merger with OfficeMax in what it deemed a highly competitive market. Staples and Office Depot said the companies had proposed divesting more than $500 million in commercial business to complete the merger, but that the FTC rejected the proposal.

The antitrust lawsuit filed by the FTC is scheduled to be tried on May 10, with court proceedings likely to begin in mid-to-late March. While the merger has been approved in several countries, Canada’s Competition Bureau has blocked the transaction, and Europe has not rendered a decision with an early March deadline.

In Q3, Staples reported a 6% decrease in total company sales. Sales for the company’s North American Commercial business grew by .7% to $2.2 billion, driven by growth in promotional products and facilities supplies.