FTC steps up scrutiny of Staples-Office Depot Merger

Dive Brief:

The Federal Trade Commission is asking other companies in the office-supply business to weigh in on the pending Office Depot-Staples merger. The retailers announced in February that Staples would acquire its rival for $6.3 billion in cash and stock after months of speculation and reports of discussions.
The agency is focused on the business-supplies side of the business. Staples, for example, now does 40% of its sales through contracts with companies. Its decision could be delayed until October or later.
There isn’t much competition left in the office-supplies space, except in this area of larger scale business contracts. Amazon and companies like ULINE and W.B. Mason, which have few to zero stores, have such contracts with businesses for office supplies.

Dive Insight:

When this merger was first proposed earlier this year, it was generally thought that the FTC would have an easier time saying yes this time around. The FTC didn’t like the idea in 1997, when Staples and Office Depot announced plans to merge. At the time, the agency cited evidence that prices of office supplies were lower in areas where both companies operated stores. In hopes of winning approval, both companies had also agreed to sell 63 of their stores to third rival OfficeMax.

Now OfficeMax has been gobbled up by Office Depot. Yet there’s been a sense that increased competition from non-office supply retail is a major reason that the FTC may very well bless this union this time around. In fact, that was the FTC’s own stated reasoning when it allowed Office Depot’s acquisition of OfficeMax in 2013.

“Our decision highlights that yesterday’s market dynamics may be very different from the market dynamics of today,” The FTC wrote in 2013.

But, it turns out, the focus is not so much on the pen-and-pencil or pretty-blank-journal side of the market, which has been infiltrated by the likes of Target, Wal-Mart Stores, Amazon, and others. Rather, the FTC appears to believe that the business side is worthy of serious scrutiny.

The American Antitrust Institute, an antitrust watchdog group, says that while online retail mitigates the anti-competitive effects of a merger somewhat, competitive concerns in the long-term contracts side of the office supplies business are serious and has urged the FTC to take a close look.

That’s clearly happening, and could be enough to scuttle the merger. For now though, sources tell the Wall Street Journal that the FTC hasn’t fallen on one side or the other, and is just looking into the space.