Dive Brief:
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Staples Inc.’s proposed $6 billion acquisition of rival Office Depot is unlikely to pass muster with the Federal Trade Commission, the New York Post reports citing two people familiar with the deal.
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Staples shares were down 1.9% on the news Monday, while Office Depot shares fell 2.37%.
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The FTC may delay its decision, due Dec. 8, but is concerned about the merger’s effect on the business-supplies side of the retail space. Staples, for example, now does 40% of its sales through contracts with companies and there isn’t much competition left in that corner.
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Until this summer, the increased competition in office-supply sales from non-office supply brick-and-mortar and from e-commerce retailers led many to believe that the FTC may very well bless this union this time around (the companies attempted a merger in 1997).
Dive Insight:
FTC in 2013 allowed Office Depot’s acquisition of OfficeMax because of increased competition in retail office supplies, but may not be enough for it to allow a Staples-Office Depot merger.
Both Staples and Office Depot did not comment to other news outlets citing the New York Post and reporting on the new developments.
Antitrust advocates like the American Antitrust Institute have warned that, while online retail mitigates the anti-competitive effects of a merger somewhat, competitive concerns remain in the office supplies segment of long-term contracts with businesses.
And while the proposed merger of Staples and Office Depot has already garnered regulatory approval from Australia, New Zealand, and China, U.S. FTC and European Union regulators are being far more cautious.
To give a sense of the size of Staples’ sales through business contracts, it will likely garner some $8.4 billion this year, while its 1,200 stores garner some $9.6 billion.
In an effort to save the merger deal, Staples has offered to bring some $600 million in contracts to office supply wholesaler Essendant, formerly United Stationers, which could presumably boost the business of much smaller company supplies retailers like ULINE and W.B. Mason. Essendant been consolidating and expanding its own wholesale business, and said during an earnings call in October that it would be open to acquisitions, although the company didn’t comment on the specific idea of acquiring any of Staples' business.
But regulators don't appear to believe that even that solution would have enough of a mitigating effect on the loss of competition in that space.