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FTC Blocks Staples/Office Depot Merger, Retailers Challenge Decision

The United States Federal Trade Commission has announced that it would contest the acquisition of Office Depot by Staples. In response, Staples and Office Depot said that they would fight the FTC challenge to their merger.

According to the FTC, Staple’s proposed $6.3 billion acquisition of Office Depot would violate antitrust laws by significantly reducing competition nationwide in the market for consumable office supplies sold to large business customers for their own use. In the challenge, the FTC is primarily focusing on the business-to-business part of the Staples and Office Depot operation, saying the BTB market is distinct from the more competitive retail sector.

“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 chairperson Edith Ramirez. “The FTC’s complaint alleges that Staples and Office Depot are often the top two bidders for large business customers.”

FTC noted that it has authorized staff to seek a temporary restraining order in federal court and a preliminary injunction to prevent the parties from consummating their merger as well as to maintain the status quo pending an administrative proceeding. The commission added that it has been cooperating with the Canadian Competition Bureau, which also filed an application today to block the transaction with Canada’s Competition Tribunal.

For their part, in a joint statement, Staples and Office Depot asserted that they would contest the FTC action, insisting that the proposed acquisition would benefit customers, employees and shareholders. They added that the FTC’s decision is based on a flawed analysis and misunderstanding of the intense competitive landscape in which Staples and Office Depot compete, and that it contradicts the commission’s own unanimous ruling as regards the 2013 Office Depot/OfficeMax merger, in which the commission declared the market highly competitive.

The companies maintained that the acquisition would generate more than $1 billion of net synergies over the three-year integration period as the combined company reduces global expenses and optimizes retail footprint, accelerating Staples’ growth in delivery businesses and in categories beyond office supplies.

The companies contended that they would demonstrate that the FTC underestimated the disruptive effect of new competitors in the digital economy and ignored vigorous competition Staples faces from rivals including office products dealers, manufacturers selling office supplies direct to business customers, dealers in adjacent categories, cooperatives of regional players, Internet resellers, big-box chains and club stores.

The companies proposed divesting more than $500 million in commercial business to complete the transaction and unlock value for shareholders and customers. However, the FTC rejected this solution, although it would strengthen a national competitor, further enable independent office products dealers, and help minority and woman-owned businesses compete for national commercial customers, Staples and Office Depot declared.

“This merger creates an unparalleled opportunity to better serve customers of Staples and Office Depot,” said Ron Sargent, chairman and CEO, Staples. “The combined company would generate significant savings, and we’re committed to investing savings in lower prices for all customers. We’ll also use the savings to continue to invest in our people, technology and customer service.”

Roland Smith, chairman and CEO, Office Depot, said, “The combination of Staples and Office Depot is based on creating an organization able to compete in a vibrant market with strong regional players and powerful new national entrants. We are confident that this transaction is consistent with the 2013 FTC statement in the Office Depot/Office Max merger and intend to pursue legal options in order to complete this transaction.”