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05/11/2016

Staples and Office Depot call off merger in wake of ruling

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The nation’s two largest office-supply chains have pulled the plug on their $6.3 billion merger.



The decision came late Tuesday, after a federal judge granted a preliminary injunction that had been requested by the Federal Trade Commission, which opposed Staples’ plan to acquire smaller rival Office Depot. The FTC had argued that merging the two chains would give them too large a share of the office supply retail market, which would be in violation of antitrust law. Specifically, it said the merger would lead to higher prices for large corporations that buy office supplies in bulk.



"By eliminating competition between Staples and Office Depot, the transaction would lead to higher prices and reduced quality," the FTC stated back in December.



In the ruling on Tuesday, U.S. District Judge Emmet Sullivan agreed, writing, “There is a reasonable probability that the proposed merger will substantially impair competition.”



Both Staples and Office Depot had countered the FTC claims, saying that merging their resources was necessary to compete effectively against the likes of Wal-Mart, Amazon and other online competitors.



It’s the second time the FTC has defeated a proposed merger between the two office-supply retailers, with the first go around in 1997. If the recent deal had been completed, the combined company would have had about $37 billion in annual revenue and some 3,500 stores.



Office Depot CEO Roland Smith and Staples CEO Ron Sargent both issued statements saying their respective companies will not appeal the court's ruling and will terminate the merger agreement effective May 16.



Under terms of the merger agreement, Staples will pay Office Depot a $250 million breakup fee.



"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," said Staples CEO Ron Sargent in a statement. “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."



Staples said it would also explore strategic alternatives for its European businesses.



The merger was proposed on Feb. 4, 2015, and approved by Office Depot shareholders the following May. The FTC rejected the merger on Dec. 7 and initiated the court case.