Recently, Staples announced their definite agreement to buy Office Depot, under which they will acquire all of the outstanding shares in a deal worth $6.3 billion. With this merger, Staples hopes to cut costs by approximately $1 billion a year, and increase profits by operating on a larger scale. However, there is still a long way to go before this happens.
First, this acquisition needs to be scrutinized and approved by the antitrust authorities, with the Federal Trade Commission in the front seat once again after 18 years. Already in 1996 Staples and Office Depot made an attempt to merge, but after some long-drawn court proceedings against the FTC they eventually lost. On June 30, 1997, the FTC won the court order and thus blocked the $4 billion merger. Where William J. Baer, the Competitor Director, shortly announced after the final decision
“Consumers have won today and competition has been preserved”
William J. Baer
Will we see a similar decision this time?
The FTC and other antitrust authorities will look very carefully into the implications this merger will have on consumers and the general influence the company might have in the industry with many believing it will be a challenge to close the deal.
“It´ll potentially be a long and nasty legal skirmish”
Tom Stemberg, Co-founder & Former Chairman of Staples
However, one must certainly keep in mind that the playfield have changed vastly over the past 18 years. In 1997 it was blocked due to antitrust grounds based on the fact that both companies had too dominant a market share, and a merger would give them a monopoly position. Today Staples and Office Depot are losing market shares to competitors that are both expanding and diversifying – like Amazon and Walmart – but also to smaller online retailers.
Could there be a glimmer of hope?
FTC is well aware of the current market condition these big office suppliers are in. They are trying to cut costs in order not to lose market share, which eventually leads to unprofitable stores. The Federal Government has signalled that it is more open to mergers of office good suppliers. In 2013, Office Depot bought its rival OfficeMax, creating a company with $18 billion in sales and over 2500 stores. If Staples-Office Depot deal would go through, it would create a retailer nearly as twice as large with $34 billion in revenues and 4400 stores. Clearly a deal that may affect the market dynamics in a different way, when we would have three biggest office suppliers under the same roof. The causes for concerns are more than valid.
So, will Staples and Office Depots motives of synergies be enough to convince antitrust authorities? It is difficult to say. But one thing is for sure, the office supply giants better prepare for a long war.