Feds Block Staples Merger Bid
The government moved to block a merger between office-supply giants Staples Inc. and Office Depot, arguing Monday that the $4 billion deal could make people pay more for paper, pens and other office and school supplies throughout the country.
The two companies - between them they operate 1,124 stores - contended the chain they envisioned would be a pencil-pusher’s dream of efficiency and low prices.
In full-page newspaper ads they had promised shoppers: “When we join forces, our greater efficiency means even lower prices for you.”
But the Federal Trade Commission said the merged companies could control prices throughout the country. On a 4-1 vote, the commission decided to seek a court order before Thursday that would put the deal on hold while it is investigated.
“The fact is that in those communities where Staples faces competition from Office Depot, prices are significantly lower than where it does not,” said William J. Baer, director of the FTC’s bureau of competition.
Todd Krasnow, Staples executive vice president of marketing, said Staples will vigorously contest the FTC’s request for a temporary injunction. The two companies said they account for only 5 percent to 6 percent of the $185 billion office-products market.
“We’ve made a promise to consumers that prices will go down, which is why we’re disappointed in the ruling by the FTC,” Krasnow said.
Staples, based in Framingham, Mass., announced last September it would acquire Delray Beach, Fla.-based Office Depot for about $3.5 billion in stock. The value of the deal has increased to about $4 billion since then as Staples stock has risen.
Trading in the stock of both companies was suspended briefly after the FTC announcement Monday. When trading resumed, the value of both companies’ stocks fell - Office Depot by 24 percent, Staples by 5 percent.
Shoppers interviewed outside a downtown Washington Staples store Monday disagreed about whether they would benefit from the deal.
“They’re going to force the prices (up) because I don’t have any other option. They carry things that most other little stores don’t carry. It’s not good,” said Azadeh Sefidroo, 43, who works as a consumer banker for NationsBank.
Wayne Donkerbrook, 40, a self-employed accountant from Arlington, Va., said he sees the merger as an advantage because he doesn’t like to go from store to store comparing prices.
“Typically what happens is some things I need are only available at Office Depot, and other things are only available at Staples. Actually, it would be kind of convenient if they did merge, for me anyway,” he said.
Staples and Office Depot have already agreed to two week-long extensions of the governmentrequired waiting period for mergers, but have not been able to come to agreement with the FTC. If federal officials win a stay in court, they will have another 20 days to decide whether to pursue a full-fledged antitrust trial.
There is speculation that as a condition for approving the merger, FTC officials want Staples and Office Depot, who have so far refused, to sell some stores to competitors such as third-ranked Office Max.
The FTC said that as the deal is structured, competition would be substantially reduced in markets in 18 states and the District of Columbia where Staples and Office Depot are the only office-supply superstores.
In a similar case last year, FTC threats to sue the Rite Aid Corp. drugstore chain over its proposed $1.8 billion purchase of Revco D.S. Inc. ultimately scuttled that deal.