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Staples to buy Office Depot for $6.3 billion

February 5, 2015

Staples store front sliderRumours that two companies have been in merger talks confirmed, with deal to be scrutinised by regulators.

The Wall Street Journal reported that Staples has confirmed a $6.3 billion (€5.5 billion) deal to acquire Office Depot following reports that the companies had been in merger talks; with Staples stating that it has been in discussions regarding a merger since September.

The deal would see the US have just “one chain of office supply superstores”, compared to three just a couple of years ago, after Office Depot and OfficeMax merged in 2013. As a result, it is expected that antitrust scrutiny will focus on the impact the deal may have on corporate customers rather than consumers; with the article noting that while the federal Trade Commission “waved through” the Office Depot/OfficeMax deal, “the current deal may get a closer look”.

Amanda Wait, a former FTC litigator, commented that “this investigation isn’t going to be about where you and I can buy a stapler […] it’s about where a company can buy 10,000 staplers”; and while the market for business customers has had less scrutiny than the consumer market in past deals, part of the  FTC’s reasoning had been that “the parties will continue to face strong competition for such customers from Staples”, and so the current deal may be reviewed differently.

However, Ron Sargent, Chief Executive at Staples said that “there are really strong players, who bid on contracts all the time, and have been very, very successful”; such as Amazon which has “just launched a business-to-business office products initiative”.

Meanwhile, regional office supplies seller W.B. Mason Co.’s Chief Executive Leo Meehan believed it was “too soon to tell whether the merger would hurt his business”, noting that while the company is “going to just have this one monstrous competitor […] every time there’s been a merger, each one has over time brought opportunity for us. One way or another, we’ll be out there trying”.

The Recycler reported that the Office Depot/OfficeMax merger created opportunities for Cartridge World, with CEO Bill Swanson commenting at the time that “mega-mergers create new customer opportunities for local retailers everywhere”.

In terms of customers, the article notes that there has so far been a lack of concern over the deal as they are aware of “plenty of places” to buy office supplies; including online sources. However, suppliers may “view the deal as less of a victory” as “when retailers combine, they often use their new size and clout to renegotiate contracts with their suppliers to push prices down”.

The decision of the FTC is likely to come down to how much competition is facing the companies, with the article noting that according to experts, “if the FTC believes regional competitors like W.B. Mason and Amazon can provide enough competition to keep prices down for corporate and government clients, they may be more likely to approve the merger”, with another factor likely to be “the extent to which companies can buy supplies straight from manufacturers”.

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