April 7, 2016

Will the Staples-Office Depot merger ever happen?

Staples and Office Depot are pursuing a merger, though they have been challenged by the FTC.

The two largest office supplies giants, Staples and Office Depot, announced their estimated $6.3 billion potential merger in February 2015, yet are still fighting to finalize this deal over a year later. Anti-trust regulators kept delaying the deal, eventually culminating in the Federal Trade Commission challenging the deal in December, citing that the merger of the two companies would mean that one resulting monopoly would dominate the market for sales of pens, notebooks and paper to large corporations, according to Bloomberg.

Staples and the FTC head to court
Staples began 10-day federal court hearing against the FTC March 21, which gained national attention when the office suppliers' attorney, Diane Sullivan, called no witnesses, claiming the federal regulator fell "woefully short" in terms of evidence for the case. The presiding district judge, Emmet Sullivan, thoroughly criticized the FTC's use of false information and sole focus on how the merger would only affect the largest corporations in the country. According to the judge's ruling, the FTC urged Amazon management to disclose information that was skewed or false regarding how the merger would negatively affect Amazon's sales in an effort to impede the deal.

The judge suggested that the two parties come together to find a common-ground solution to this merger. Furthermore, the judge pressured the FTC to accept Staples' settlement offer, siding with Staples position that the federal regulator failed to provide sufficient evidence to back its claim. As outlined in the Staples settlement offer, the company agreed to freeze prices for office supplies sales to corporate customers for the next three years, according to the New York Post.

United against alleged wrongdoing
Prior to the start of the trial, Staples Chairman and CEO Ron Sargent and Office Depot Chairman and CEO Roland Smith issued a joint letter to their customers outlining all the reasons why they believe the FTC's ruling to be wrong and more concerned with protecting other organizations' interests rather than their own.

"The FTC's actions to stop this transaction are based on a flawed analysis of the marketplace and a deep misunderstanding of the competitive landscape." Sargent and Smith said. "The FTC has cherry picked a few facts to fit its narrative and support its case. In making its case, the FTC refuses to even acknowledge the rise of new competitors, such as Amazon, and the disruptive effects of the digital economy."

Both companies maintain that the merger will be beneficial for all of their customers, not damaging to a select few industry giants, such as Amazon. In the letter, Sargent and Smith further explained that this merger will not even affect "99 percent of [their] commercial customers." 

Due to the outcome of certain parts of the Federal Trade Commission v. Staples Inc. case, certain industry analysts believe the outlook for a future Staples-Office Depot merger is highly likely.