Regulators Quash Staples, Office Depot Merger Ftc Says Proposed Sale Of A Few Stores To Rival Chain Wouldn’t Preserve Competition

The government will go to court next week to stop a scaled-down merger of the nation’s two largest office supply chains.

The Federal Trade Commission voted 4-1 Friday to reject an offer by Staples Inc. and Office Depot Inc. to sell to their biggest competitor part of the combined superstore empire they’ve envisioned.

Commission officials say they will argue in court that, even with that concession, the merger would increase prices for consumers in markets across the country.

“This merger is all about eliminating head-to-head competition,” said William J. Baer, director of the FTC’s Bureau of Competition. “If it’s allowed to go through, consumers will pay more in city after city across the country.”

Staples Chairman and CEO Thomas G. Stemberg said he was taken aback by the ruling because the commission’s staff had encouraged the companies to pursue a restructured deal that included the sale of 63 stores to third-ranked competitor Office Max.

“The Federal Trade Commission has decided to put itself between ourselves and lower prices,” Stemberg said.

Stemberg said he estimates Staples and Office Depot have spent $10 million trying to please regulators and will now have to decide together whether to give up their plans or fight the FTC in court.

“If I was a betting man I would say this matter is likely to end up in litigation. I’d say there’s a better than 50 percent chance,” he said. “We feel very confident that there is strong merit to our position.”

Office Depot’s stock fell 32 percent on the news, or $6, to close at $13 a share. Staples edged up 62-1/2 cents, or 3 percent, to $21.87-1/2.

FTC officials said they would use prices from Staples and Office Depot’s own advertising to make a case in court that shoppers get better deals in cities where more office supply superstores compete.

For instance in Greensboro, N.C., where Staples, Office Depot, and Office Max all have stores, a box of 500 business envelopes costs $3.59 at Office Depot. But in Charlotte, N.C., where only two of the superstores compete, the Office Depot charges $4.99 for the same envelopes.

The FTC said it found even more marked price differences in cities where only Staples has stores. In Decatur, Ill., where Staples is the only superstore, packs of yellow stick-on note pads cost $5.79. In Champagne, Ill., where Staples has competition, they cost $2.99.

“What affects pricing at the superstores is the presence of other superstores,” said Baer, who characterized the FTC as having “better evidence than we usually have” that consumers would suffer from the merger.

Staples, based in Framingham, Mass., announced last September it would acquire Delray Beach, Fla.-based Office Depot for about $3.5 billion in stock.

When regulators objected last month that the two companies combined could control prices in markets in 18 states and the District of Columbia where they are the only office-supply superstores, the companies proposed selling the 63 stores to Office Max.

In the deal, Office Max, which has headquarters in Shaker Heights, Ohio, would have acquired stores in key cities where it does not have a presence, plus a dozen other markets. That would have boosted the chain to 638 stores.

Staples and Office Depot still would have had more than 1,000 stores between them.

Staples and Office Depot argue that the FTC’s opposition ignores the competitive role played by mom-and-pop stores, catalog businesses and general merchandise chains.