FTC Moves To Break Up Staples Office Depot Merger
The Federal Trade Commission filed an administrative complaint yesterday seeking to block Staples, Inc.’s proposed $6.3 billion acquisition of rival Office Depot, Inc., claiming the merger would violate the antitrust laws by significantly reducing competition nationwide in the market for “consumable” office supplies sold to large business customers for their own use.
The FTC’s action is not surprising given Staples—the world’s largest seller of office products and services—is attempting to acquire its closest competitors in the sale of consumable office supplies to large business customers. “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,” said FTC Chairwoman Edith Ramirez in a statement.
While Staples and Office Depot argued that their union would create a better opportunity to serve their customers through savings and lower prices, the FTC disagreed, and could not be appeased by the companies’ offer to divest a substantial amount of assets, including transferring $600 million in corporate office supply contracts to a wholesaler.
This is not the regulatory watchdog’s first foray down the aisles of printer toner and pencils. Indeed, it is these same companies’ second attempt at combining, having unsuccessfully petitioned the FTC in 1997 to allow for an acquisition. In that case, Staples and Office Depot were the only office superstores located in 15 geographic markets. The FTC argued that their combination would eliminate competition in those geographic markets (and inhibit competition in others) for two relevant product markets: the retail sale of office supplies through office superstores, and the sale of office supplies through retail stores to small businesses.
In 2013, however, the FTC permitted Office Depot to acquire the third largest office supply chain, OfficeMax, Inc. The FTC closed a seven-month investigation into that deal after concluding that mass merchants like Target and Wal-Mart, as well as club stores, had proliferated in the ensuing years and were effectively competing against office superstores by offering office supplies for sale. The FTC determined that office superstores were increasingly losing sales to online merchants, and facing downward pricing pressure from these online, lower priced competitors. The FTC also specifically found that Office Depot and OfficeMax were not each other’s closest competitors for contract-based sales of office supplies to large businesses—noting that large customers “use a variety of tools to ensure that they receive competitive pricing” and that non office superstore competitors and regional suppliers compete for these accounts—and therefore saw little concern for purposes of the contracting channel based on that merger.
But today, the FTC appears to have changed its tune. The administrative complaint filed Monday focuses exclusively on the business-to-business market as distinct from the more competitive retail markets for office supplies sold to consumers. The complaint asserts that entry or expansion into this B-2-B market—by other office supplies vendors, manufacturers, wholesalers, or online retailers—would not be sufficient to counteract the anticompetitive effects of the merger. Yet this B-2-B market appears to be the same “contracting channel” the FTC passed on in its investigation of the Office Depot- OfficeMax merger.
Given that Staples and Office Depot have announced their intent to litigate the challenge, it will be interesting to see if they can take advantage of this seeming analytic discrepancy in FTC’s approaches in this industry. Indeed, the companies said in a joint statement that they plan to show the FTC underestimates the types and varieties of new competition they face.
– Edited by Gary J. Malone
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