Strategy

FTC Rejects Staples’ Offer on Office Depot Deal

Staples' proposal to divest up to $1.25 billion of commercial contracts isn't enough to ease the FTC's concerns that the merger will stifle competi...
Katie Kuehner-HebertDecember 21, 2015

The U.S. Federal Trade Commission has rejected Staples’ latest attempt to win antitrust approval for its $5.5 billion deal to buy Office Depot, the office supply retailer said Monday.

Staples said it had proposed divesting up to $1.25 billion of commercial contracts as a remedy for antitrust concerns, but the FTC rejected its offer without making a counteroffer.

The agency sued to block the deal on Dec. 7, saying the merger of the two leading U.S. office supply companies would hurt competition.

“The company is still willing to continue negotiations with the FTC to reach a settlement that addresses FTC concerns,” the company said. “At the same time, Staples is pursuing the transaction through litigation. The company is confident in its legal position and looks forward to a full and impartial judicial review of the matter.”

A trial has been set for March 21 in Washington. FTC attorney Tara Reinhart said at a court hearing last week that the FTC is concerned the companies are merely transferring contracts and not divesting physical assets.

Staples and Office Depot announced the merger in February under pressure from activist investor Starboard Value. Staples CEO Ron Sargent said at the time the transaction would help the company cope with a changing competitive environment and save at least $1 billion in costs.

Staples last year announced it was closing hundreds of its North American stores to stanch the bleeding in that business. Despite that, Fortune noted, same-store sales “have continued to fall. At the same time, its commercial contracts business is growing, illustrating how much it wants to get a deal done if it is willing to lose $1.25 billion in contracts.”

If the FTC just wants physical assets such as distribution centers sold, that may make a settlement easier than if it’s also concerned about the ability of the buyer of the assets to compete effectively, Jennifer Rie, an antitrust analyst at Bloomberg Intelligence, told Bloomberg.

“If it’s just a matter of more assets, then a settlement is likely doable here,” she said.