FTC Says Staples-Office Depot Deal Is A No-Go, Files Antitrust Lawsuit To Stop Mega-Merger

The nightmare dream of the formation of the $6.3 billion StaplesMaxDepot Voltron has officially hit a (very big) speed bump: federal regulators unsurprisingly filed a complaint today charging that the proposed mega-merger’s affect on commercial businesses would violate antitrust laws. 

As expected, the lawsuit filed by the Federal Trade Commission to block the deal focuses less on retail sales at physical stores, and more on the retailers’ contracts to provide supplies to large corporations and businesses.

The administrative complaint – filed one day before the FTC’s self-imposed Dec. 8 deadline to move on the deal – is based on the findings that a merged company would reduce competition nationwide in the market for “consumable” office supplies – pens, paper, sticky notes, etc. – sold to large business customers.

Because Massachusetts-based Staples – the world’s largest seller of office products and services – and Florida-based Office Depot are each other’s closest competitors in the sale of office supplies to large business customers, the agency believe that the proposed merger would “eliminate beneficial competition that large companies rely on to reduce the costs of office supplies.”

According to the complaint, the business-to-business market – in which large companies buy supplies from either Office Depot or Staples through contracts – is distinct from the more competitive nature of selling supplies to individual consumers.

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.

If the companies were to merge, the FTC alleges that these customers would pay more and receive a lesser quality product.

While it was previously reported that regulators’ concerns would be placated if Staples sold off a chunk of its commercial business – one proposal in October had the company selling that portion of its business to Essendant – the FTC’s complaint on Monday claims that such a sale would “not be timely, likely, or sufficient to counteract the anticompetitive effects of the merger.”

The FTC’s action came after the commission’s four-person panel voted unanimously to file the lawsuit.

The Wall Street Journal reports that the fight for a combined company is far from over. Both Staples and Office Depot say they plan to contest the lawsuit, saying that the FTC decision was “based on a flawed analysis and misunderstanding of the intense competitive landscape in which Staples and Office Depot compete.”

Monday’s lawsuit is the second time the FTC has taken action to ban the marriage of the retailers. In 1997, the commission won a ruling from a federal judge blocking a deal.

FTC Files Lawsuit Seeking to Block Staples-Office Depot Merger [The Wall Street Journal]