Staples, Office Depot End Merger Plan

A Federal judge has blocked Staples’ merger-acquisition deal with Office Depot, which was contested by the U.S. Federal Trade Commission. In turn, the two retailers have agreed to end the merger deal.

The FTC sought to deny the merger, saying that it would hurt competition, particularly in the business-to-business office goods sector. The District Court for the District of Columbia agreed with the FTC, citing the business-to-business impact, according to media reports.

In a statement from the FTC, bureau of competition director Debbie Feinstein asserted, “Today’s court ruling is great news for business customers in the office supply market. This deal would eliminate head-to-head competition between Staples and Office Depot and likely lead to higher prices and lower quality service for large businesses that buy office supplies.”

Both retailers expressed disappointment with the court decision. Roland Smith, Office Depot chairman and CEO, said, “While we are respectful of the court’s decision to grant the FTC’s request for a preliminary injunction to prevent our merger with Staples, we are disappointed by this outcome and strongly believe that a merger would have benefitted all of our customers in the long term. We do not intend to appeal the court’s decision and the two companies plan to terminate the merger agreement effective May 16, 2016.”

He added, “As the Staples merger process comes to an end, we look forward to re-energizing our business. We remain committed to delivering our 2016 critical priorities and realizing the remaining synergies and efficiencies that come from the integration of Office Depot and OfficeMax.”

Ron Sargent, Staples’ chairman and CEO, said, “We are extremely disappointed that the FTC’s request for preliminary injunction was granted… We believe that it is in the best interest of our shareholders, customers, and associates to forego appealing this decision, terminate the merger agreement, and move on with our strategic plan to drive shareholder value. We are positioning Staples for the future by reshaping our business, while increasing our focus on mid-market customers in North America and categories beyond office supplies.” 

Under terms of the merger agreement, Staples will pay Office Depot a $250 million break-up fee due to the deal termination. Staples also stated that it would terminate an agreement to sell more than $550 million in large corporate contract business and related assets to Essendant, a deal that had been negotiated in anticipation of the Office Depot merger.

In detailing a strategic plan to enhance long-term value, Staples said it plans to explore strategic alternatives for its European operations as it boosts its mid-market growth strategy in North America. Staples has closed more than 300 stores in North America since 2011 and will concentrate on boosting productivity and preserving profitability in its remaining retail stores in the region by increasing customer conversion, enhancing the mix of services and reducing fixed costs. It also plans on shuttering at least 50 more underperforming North American stores this year.

Staples is also initiating a new multi-year cost savings plan that it expects will generate $300 million of annualized pre-tax cost savings by the end of 2018.