The Federal Trade Commission announced on Monday that a lawsuit has been filed seeking to block the proposed retail merger between Staples, Inc. and rival office supply company Office Depot over concerns that the merger of the only two national office supply chains would eliminate important competition, increase prices for corporate customers, and reduce consumer options. All four FTC commissioners voted in favor of the lawsuit.
“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.
This latest lawsuit marks the second time that the FTC has intervened to prevent the two companies from merging. The commission won a ruling in 1997 that blocked a proposed Staples-Office Depot retail merger. Both companies argued that the outcome should be different this time because the industry has evolved over the last two decades. Two years ago when the FTC approved Office Depot’s retail merger with OfficeMax, it found that retail consumers have numerous options due to competition from Internet companies like Amazon.com Inc. and big-box retailers like Wal-Mart Stores Inc.
However, the FTC’s investigation of the proposed takeover, which would unite the No. 1 and No. 2 office supply retailers, doesn’t focus on how further consolidation would affect everyday retail customers. Rather, it has focused on whether the creation of just one national supplier would harm competition and raise prices for large corporate customers who buy under contract.
Last week Staples reportedly had sought to ease FTC concerns by revising a package of actions proposed as part of the $6.3 billion bid. In an attempt to gain regulatory approval of the deal, concessions reportedly included the sale of Office Depot assets with revenues of up to $1.25 billion in order to win antitrust approval. In negotiations with the FTC, reports claim that the company had already offered to divest about half that amount. According to multiple reports, Staples had proposed to transfer contracts to Essendant Inc., a distributor of office supplies and other products based in Deerfield, Illinois, to remedy concerns.
The companies quickly said they plan to contest the lawsuit opposing the retail merger, arguing that they intend to show that the FTC underestimated the disruptive effect of new competitors in the digital economy and ignored competition Staples faces from other competitors, including office products dealers, manufacturers selling office supplies direct to business customers, dealers in adjacent categories, Internet resellers and others.
“The combined company would generate significant savings, and we’re committed to investing savings in lower prices for all customers,” Ron Sargent, Staples Chairman and CEO said in a formal response. “We’ll also use the savings to continue to invest in our people, technology and customer service.”