Shares of both Staples and Office Depot tumbled Wednesday after the two office supply giants scuttled their proposed $6.3 billion merger because of antitrust concerns.
The demise of the deal quickly followed a federal judge’s decision on Tuesday to grant the Federal Trade Commission’s request for a preliminary injunction to block the acquisition. Staples will pay Office Depot a $250 million break-up fee for terminating the deal.
“We are extremely disappointed that the FTC’s request for preliminary injunction was granted despite the fact that [the FTC] fell woefully short of proving its case,” Staples CEO Ron Sargent said late Tuesday in a news release.
Staples shares fell more than 17% to $8.52 in trading Wednesday, while Office Depot was down 38%, at $3.76. Staples’ buyout offer was valued at about $10.36 per Office Depot share.
The termination of the offer “casts a cloud of uncertainty over the next steps for each retailer,” USA Today said. It was the second time in 19 years that the two companies have called off a merger after federal regulators raised antitrust concerns.
Sargent said Staples is reshaping its business “while increasing our focus on mid-market customers in North America and categories beyond office supplies.” Office Depot, meanwhile, said it plans to host an investor conference call next week to discuss its next steps “in our go-forward strategy.”
In granting the injunction, U.S. District Judge Emmett G. Sullivan said the FTC had met its burden of “showing that there is a reasonable probability that the proposed merger will substantially impair competition in the sale and distribution of consumable office supplies to large business-to-business customers.”
“We are disappointed by this outcome and strongly believe that a merger would have benefited all of our customers in the long term,” Office Depot CEO Roland Smith said.
But Debbie Feinstein, director of the FTC’s competition bureau, hailed the court’s decision as “great news for business customers in the office supply market.”
“This deal would eliminate head-to-head competition between Staples and Office Depot and likely lead to higher prices and lower quality service for large businesses that buy office supplies,” she said.