How Staples, Office Depot Failed Merger Could Affect Distributors

A federal judge blocked Staples proposed $6.5 billion merger of Office Depot on Tuesday, which could have a far-reaching impact on industrial and wholesale distributors.

Id 16396 Staples Office Depot Hock

A federal judge has backed the Federal Trade Commission in blocking Staples proposed $6.5 billion acquisition of Office Depot by agreeing to the FTC’s request for a preliminary injunction on antitrust grounds. It was the second time in 20 years that the merger between the two office supply giants has been stopped.

U.S. District Judge Emmet Sullivan said in a ruling Tuesday that the FTC met its legal burden by showing it was likely the Staples-Office Depot merger would ‘‘substantially impair competition in the sale and distribution of consumable office supplies to large business-to-business customers.’’ Regulators also succeeded in showing that blocking the deal would be in the public interest, he said.

The two companies said they will not appeal Sullivan’s ruling.

“We are extremely disappointed that the FTC’s request for preliminary injunction was granted despite the fact that it failed to define the relevant market correctly, and fell woefully short of proving its case,” Staples chief executive Ron Sargent said in his company’s announcement.

Id 16396 Staples Office Depot Hock

The decision could have a far-reaching impact on industrial and wholesale distributors.

Essendant, for example, a leading supplier of workplace essentials, said that its previously announced acquisition from Staples of wholesale contracts with minority and woman-owned office supply resellers and their large corporate customers will not close. The contracts represented more than $550 million in sales. The acquisition was contingent on the merger between Staples and Office Depot.

"While we are disappointed that we are not able to close on the transaction, we always understood this to be a potential outcome given the contingent nature of the agreement," Essendant president and CEO Robert Aiken Jr. said in a statement. “We have demonstrated the ability to grow our enterprise account business and expect to continue this growth by fully enabling our independent resellers, many of whom are preferred options in the marketplace.”

Staples said it planned a series of changes in the wake of the failed merger, which was first announced in February. The company, which will pay a $250 million breakup fee, said it is initiating a $300 million cost-reduction plan and exploring strategic alternatives for its European operations.

Staples expects to close 50 stores in North America and repurchase roughly $100 million in stock this year.

“We are positioning Staples for the future by reshaping our business, while increasing our focus on mid-market customers in North America and categories beyond office supplies to build scale and credibility and accelerate growth in these areas.” Sargent said.

Staples has already entered the safety supplies area and has reportedly hired a number of safety experts. It now could possibly look to add industrial supplies to its product mix.

Office Depot did not immediately announce major changes, but said in an announcement that it would host a conference call on May 16 to discuss its next steps.

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