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Staples-Office Depot merger blocked

May 11, 2016

The two retailers’ efforts to merge have been “scuttled” by Judge Emmet Sullivan at the US District Court, after months of court battles.

The US District Court in Washington DC

The US District Court in Washington DC

International Business Times reported on the announcement, which saw Sullivan end the retailers’ “second attempt to merge”, as he sided with the FTC who had “sued to block the move”. The Federal Trade Commission (FTC)had filed a lawsuit to block the $6.3 billion (€5.8 billion) merger last year, though it had been said to have taken a dramatic turn towards approval after Judge Sullivan highlighted FTC attempts to pressure Amazon “to lie” about the challenge a combined company might pose.

Staples and Office Depot then surprised observers by refusing to present a defence, which was called a “risky decision”. Amazon had become embroiled amid rumours of it helping out the merger earlier this year, while further settlement talks were revealed that came to nothing. Staples had also offered to freeze prices for approval, before both companies extended their merger agreement, and in the case, the relevance of cartridges to the merger was also covered.

Sullivan’s ruling stated that the FTC had “provided a compelling argument against the merger plan”, adding that “there is a reasonable probability that the proposed merger will substantially impair competition in the sale and distribution of consumable office supplies to large business-to-business customers”. Staples’ stock fell 10 percent, while Office Depot’s stock fell 26 percent after the ruling was announced.

The FTC had requested Sullivan “weigh an injunction against the merger while it grappled with a challenge to the merger in its own administrative court”, and Ron Sargent, Staples’ Chairman and CEO, commented that “we are extremely disappointed that the FTC’s request for preliminary injunction was granted despite the fact that it failed to define the relevant market correctly, and fell woefully short of proving its case”.

The news site noted that the retailers’ argument that Amazon was “making it increasingly difficult” to compete, and that a merger would allow them to “become more efficient and offer lower prices”, may have “lost some weight because the companies had attempted to merge in 1997, years before Amazon rose to become a major online threat to traditional retail”. As with the 1997 attempt, it pointed out, “a judge rul[ed] in favour of the FTC before the FTC could rule on its own”.

International Business Times concluded that the argument against the merger now is “much different” to 1997, where it said that “even if the major companies have plenty of competition from smaller rivals, merging them would lead to an overall increase in prices to consumers […] with virtually all small office supply retailers wiped out of the marketplace with the growth of e-commerce, the FTC is now arguing that Office Depot and Staples should remain rivals”.

 

 

 

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