In an effort to gain approval for their $6.3 billion proposed marriage to Staples, Office Depot announced last month it would close about 400 stores. While that move could certainly help the merger process, it appears that federal regulators are less worried about retail sales at physical stores, and more concerned about their contracts to provide supplies to large corporations and businesses.
The Boston Globe reports that the two companies could face more costly concessions than just closing a few hundred stores when it comes to gaining antitrust approval from the Federal Trade Commission to walk down the aisle.
Instead, the FTC is reportedly looking more closely at how a combined mega-office supply store could restrict competition when it comes to commercial customers restocking paper, pens and other necessities for the workplace.
Staples and Office Depot are currently the top two office suppliers in the U.S. contract business, with the next closest company being W.B. Mason which serves only select regions of the U.S.
Analysts believe that in order for the Staples/Office Depot merger to gain approval, the larger of the two chains – Staples – would have to divest a significant portion of its contract division, including distribution centers and certain client contracts.
“To cure the anticompetitive threats, you’d have to divest operations to create a national competitor,” Randy Stutz, associate general counsel at the American Antitrust Institute in Washington, tells the Globe. “You’re talking about giving up extremely valuable assets and huge numbers that almost make the deal not worthwhile at that point.”
While Staples declined to comment on the possible antitrust issues to the Globe, CEO Ron Sargent said in an investor conference Wednesday that the merger was “on track.”
In a quick address to contract business, Sargent told investors that nearly half of Staples deals with large companies involve products that are outside the realm of traditional office supplies.
“So, if you start to look at the market as beyond office supplies, which is what we do, obviously the market gets a lot bigger and our share gets a lot smaller,” he said.
Office Depot declined to provide comment to the Globe about potential contract antitrust issues.
Citing people close to the matter, the Wall Street Journal reported earlier this week that the FTC has stepped up its scrutiny of the deal by seeking sworn legal declarations that could be used if antitrust enforcers decide to challenge the deal.
The Commission currently has until mid-October to decide whether to approve or challenge the office supply merger. However, that deadline could be extended.
Staples and Office Depot first announced their plans to walk down the aisle back in February, after receiving significant pressure from shared investor Starboard Value in December.
The two companies – which have faced significant competition for office supply sales from online companies like Amazon – previously tried to tie the knot 17 years ago, but those efforts were thwarted by the federal regulators.
Staples’ merger with Office Depot faces antitrust questions [The Boston Globe]
FTC Intensifies Antitrust Review of Staples-Office Depot Merger [The Wall Street Journal]