After months of speculation and reports of discussions, Staples and Office Depot announced last week that Staples would acquire its rival for $6.3 billion in cash and stock.
If the deal passes muster with the Federal Trade Commission, it will combine the two largest office-supply retailers. And if left largely untouched by the FTC, the merged company will operate some 4,400 stores and have sales of $34 billion.
But this idea has been floated years ago, and was shut down by the FTC. What, if anything, has changed?
Down this road before
The new office-supplies retailer, if Staples and Office Depot were to merge, would make a big office-supplies retailer. The FTC actually didn’t like that 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.
The American Postal Workers Union, for one, opposes today's deal, and is urging the FTC to nix it, saying that it will result in higher prices to consumers.
"We will urge the Department of Justice and the Federal Trade Commission to block this monopolistic and unlawful merger now, just as they did 17 years ago,” said APWU President Mark Dimondstein. “And we call on Congress to weigh in with the FTC and the Department of Justice to stop it.”
Why would the FTC say yes?
But things have changed in the past 17 years.
That these two have agreed to merge not so long after Office Depot completed its own acquisition of rival OfficeMax is a testament to how much stiffer the competition has grown from the likes of Amazon and others.
It’s that increased competition from non-office supply retail that is the 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.
“In this case, significant developments in the market for consumable office supplies have led us to approve a merger when we had blocked a similar merger sixteen years ago. In so finding, we emphasize that our decision, including our view of the competitive interaction between brick-and-mortar retailers and Internet sellers, is limited to the facts before us in this particular matter,” the commission said then.
The “in this particular matter” language, of course, is meant to discourage anyone from jumping to conclusions regarding any other merger, as in the proposed Staples-Office Depot deal today. But many do expect the FTC’s blessing this time around.
"I think there's a fair chance for this deal to be approved," said Seth Bloom, an antitrust attorney who once worked at the Justice Department's antitrust division.
Pre-deal jitters
Even if the deal is ultimately approved, though, the FTC will likely take a good long hard look at it. Anticipation of such scrutiny last week made some investors nervous, sending shares lower after initial excitement on the merger news had sent both retailers’ shares up.
Those jitters in part came from Staples stipulation that it can walk away if the FTC requires divestiture of stores that Stapes may not want to shutter.
"This is a no-brainer," BB&T Capital Markets retail analyst Anthony Chukumba told USA Today about the merger plan. "But Staples has given themselves a major out, so I think people are concerned that this deal may not close.”
Trouble lurking in the shadows
The one area that few are talking about, but has the opportunity to capture the FTC’s attention, is in corporate sales.
As the Wall Street Journal notes, that wasn’t an outstanding issue when these two rivals previously proposed a merger. And it was less of an issue for the Office Depot-OfficeMax merger because there was still Staples. But it is likely to be one now because it’s an area of office supplies retail that isn’t touched (at least not now) by Wal-Mart Stores Inc., Costco, Amazon, or the other general merchandise competitors.
“This investigation isn’t going to be about where you and I can buy a stapler,” Amanda Wait, a former FTC litigator, told the Wall Street Journal. “It’s about where a company can buy 10,000 staplers.”
