After ruling, Office Depot and Staples abandon merger

By Karen Kidd | May 13, 2016

WASHINGTON (Legal Newsline) – A judge's Tuesday ruling on the Federal Trade Commission's request for an injunction halted a proposed $6.3 billion Office Depot and Staples merger.

At issue was a proposed merger that was announced in February 2015 when Staples, the nation's largest office supplies retailer, said it had reached an agreement to buy its smaller competitor, Office Depot. The two have decided to abandon their plans for the merger, in light of the ruling.

The FTC filed its administrative complaint in December, charging the proposed merger would violate antitrust laws by significantly reducing nationwide competition in the consumable office supplies market. The FTC also sought a preliminary injunction to stop the merger until the case is decided.

Months in court produced arguments that can seem very minor, but have loomed very large in the case. For instance, in its own observations of the case, PaRR Global, part of the Mergermarket Group, pointed to the testimony of nine witnesses that ink and toner falls under the category of consumable office supplies.

"In court, the defense argued that products such as pens and paper are not critical to the mission of Staples’ and Office Depot’s large corporate customers, in contrast with the restaurants and hospitals that rely on US Foods and Sysco (TICKER) to deliver food," the PaRR Global article said.

"The FTC successfully blocked the merger between US Foods and Sysco - the only two national US food distributors - last year. The implication is that corporate customers of Staples or Office Depot do not need timely deliveries of pens and paper to succeed in the same way a restaurant needs fresh food from Sysco or US Foods to succeed, an economist familiar with the Office Depot/Staples case said."

U.S. District Judge Emmet G. Sullivan for the District of Columbia had, at times, wavered between the case's combatants in what became a very acrimonious court battle between the FTC and the two office supply companies.

In January, Sullivan denied a motion by Staples and Office Depot in their pursuit of information about corporate clients that had been collected by federal regulators in their investigations. Those investigations were in reference to the successful merger between Office Depot and OfficeMax in 2013, as well as Office Depot and Staples' disputed attempt to merge.

In last month's hearing, Sullivan, from the bench, criticized the FTC in what he said were the commission's efforts to produce false information about Inc's ability to compete against a merged Office Depot and Staples. Sullivan also ruled a government expert, produced only after the case was filed, wouldn't be allowed to testify on the same topic.

During a 10-day hearing that ended April 19, Sullivan agreed to consider the FTC's motion for preliminary injunction, but urged both sides to “sit down and talk," apparently a recommendation the FTC and the two office supply companies work out their difficulties. That didn't happen.

Even had the judge ruled against the FTC's motion, that alone wouldn't have been enough to change the commission's usual practice of challenging mergers in constricted markets, Roxane Polidora, a partner with Pillsbury Winthrop Shaw Pittman's office in San Francisco, said.

"We're talking about different cases in different markets," Polidora said. "Even if the court (had ruled) against the FTC, I don't think that (would have changed) their strategies in defending those markets."

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