FTC Challenges Staples-Office Depot Merger for Violating Antitrust Laws

FTC Challenges Staples-Office Depot Merger for Violating Antitrust Laws
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December 7, 2015

The proposed merger between Staples and Office Depot isn't sitting well with federal regulators.

The Federal Trade Commission (FTC) filed for a restraining order and temporary injunction to keep the merger from happening pending an administrative proceeding. Commissioners believe that Staples $6.3 billion acquisition of Office Depot would violate antitrust laws by significantly reducing competition nationwide for consumable office supplies sold to large businesses.

Unlike hardware and software, consumable office supplies include items such as pens, pencils, notepads, sticky notes, file folders, paper clips, and paper used for printers and copy machines. Staples and Office Depot are each other's closet competitors in the sale of these types of supplies to large business customers.

According to the complaint, many large business customers buy consumable office supplies for their own use under a contract. In addition to a wide range of office supplies at competitive prices, the vendor provides them with fast and reliable nationwide delivery, dedicated customer service, customized online catalogs, integration of procurement systems, and detailed utilization reports. That business-to-business market is distinct from the more competitive retail markets for office supplies sold to consumers.

The complaint alleges that, in competing for contracts, both Staples and Office Depot can provide the low prices, nationwide distribution and combination of services and features that many large business customers require. The complaint further alleges that, by eliminating the competition between Staples and Office Depot, the transaction would lead to higher prices and reduced quality. The complaint also asserts that entry or expansion into the market – by other office supplies vendors, manufacturers, wholesalers, or online retailers – would not be timely, likely, or sufficient to counteract the anticompetitive effects of the merger. Finally, the complaint asserts that purported efficiencies would not offset the likely competitive harm.

"The Commission has reason to believe that the proposed merger between Staples and Office Depot is likely to eliminate beneficial competition that large companies rely on to reduce the costs of office supplies," FTC Chairwoman Edith Ramirez said in a statement. "The FTC's complaint alleges that Staples and Office Depot are often the top two bidders for large business customers."

In its own statement, Staples announced that it will challenge the FTC's complaint. The company states that the FTC's decision is based on flawed analysis and a misunderstanding of the competition the office supply stores face in today's market.

The statement goes on to say,

The companies intend to show that the FTC underestimates the disruptive effect of new competitors in the digital economy and ignores the vigorous competition Staples faces from numerous competitors, including office products dealers, manufacturers selling office supplies direct to business customers, dealers in adjacent categories, cooperatives of regional players, Internet resellers, big-box chains and club stores.

"The combined company would generate significant savings, and we're committed to investing savings in lower prices for all customers," Ron Sargent, Staples chairman and chief executive officer, said in a statement. "We'll also use the savings to continue to invest in our people, technology and customer service."