The proposed merger of Staples (NASDAQ:SPLS) and Office Depot (NASDAQ:ODP) is on the ropes. The Federal Trade Commission has filed suit to block the deal, claiming it would significantly reduce competition in the office supply market.
Staples agreed to buy Office Depot for $6 billion in February.
"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. "The FTC's complaint alleges that Staples and Office Depot are often the top two bidders for large business customers."
Of particular interest is the companies' B2B businesses. The two retailers compete for contracts to supply businesses with consumable, or replenishment, products such as pens, file folders and paper.
The complaint alleges that 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. Eliminating the competition between the retailers would result in higher prices and reduced quality.
The complaint also asserts that entry or expansion into the market by other office suppliers or retailers would not be timely, likely or sufficient to counteract the anticompetitive effects of the merger. The FTC also takes issue with the assertion by the two companies that efficiencies would offset the likely competitive harm.
The FTC is seeking a temporary restraining order to prevent the merger.
Last week Staples offered to make additional concessions to allay antitrust concerns, but the combination of the top two retailers in the segment is still facing opposition. Office Depot acquired OfficeMax in 2013, and should Staples succeed in purchasing Office Depot, the original top three specialty retailers will be reduced to a single chain.
-See this FTC statement
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