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Staples-Office Depot decision analysed

Staples-Office Depot decision analysed

April 12, 2016

A financial analysis site has questioned the “risky decision” made by the retailers in their merger case.

The US District Court in Washington DC

The US District Court in Washington DC

The Federal Trade Commission (FTC) filed a lawsuit to block the $6.3 billion (€5.8 billion) merger last year, and recently, the case took a dramatic turn towards approval after Judge Sullivan highlighted the FTC’s attempts to pressure Amazon “to lie” about the challenge a combined company might pose. Staples and Office Depot then surprised observers of the case by refusing to present a defence, and The Motley Fool discussed that move in context of the final decision to be made by Judge Emmet Sullivan.

The site noted that the retailers have made a “risky decision in a case with a lot riding on its outcome”, adding that the verdict “might not be so super” if the retailers’ decision “not to mount a defence […] fails”. After recapping that the two companies viewed the FTC’s case “as being so weak” that they “didn’t even bother mounting a defence”, the site pointed out that “without question, the FTC’s arguments were severely undermined” by the Amazon revelations.

It went on to note that this was a “devastating moment that likely crippled the prosecution’s case, but it still seems like a risky decision to not mount a defence”, adding that “you would have expected them to give the judge all the information he might need to render a verdict in their favour”. The case resumes on 19 April for additional testimony, and the site reflected that the FTC “has been unwilling to budge from its position”, pouring water over any possible settlement.

The Motley Fool then referenced the retailers’ positions on the FTC’s case, namely that the commission is “merely defending the privilege of the richest corporations against possibly having to pay higher prices”. It concluded that “while it may seem self-evident on its face that the FTC will lose as a result of those positions”, it has a “low hurdle to get over in the first place”, because it was only asking for an injunction “while it holds an in-house trial”.

In turn, by not defending themselves, the retailers “leave unchallenged the government’s position they are the only two retailers from which big business buys”, which could mean the government’s definition of “what constitutes the office supplies market” – something that tied in cartridges to the case’s significance – will be the “one the judge makes his determination on”.

Amazon became embroiled amid rumours of it helping out the merger earlier this year, while further settlement talks were revealed that came to nothing. A decision is expected from Sullivan before 10 May, six days before Staples and Office Depot’s merger agreement expires, while Staples has also offered to freeze prices for approval. Both companies extended their merger agreement to May in January, while the EU approved the merger after concessions.

 

 

 

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