The combined company would merely be a major competitor in the entire office-supply business. Still, the FTC is concerned that by combining the companies, the number of potential large-scale suppliers will decrease. The agency is concerned if the merger will lead to negative changes in the large-scale client sector. Royal Bank of Canada’s head of global procurement Peter Conrod likely summarizes the FTC’s internal debate with his divided opinion. Conrod told the Wall Street Journal, “Typically consolidation is good because it allows us to deal with fewer suppliers, but you get to a point where it’s too consolidated and you don’t have too much choice.”
When Staples announced in February that it would acquire rival Office Depot in a $6.3 billion takeover deal involving cash and stocks, many wondered if the Federal Trade Commission (FTC) would reject the deal on antitrust grounds. The FTC had rejected a proposed merger between the two office-supply giants in 1997 due to evidence that showed regions in which the two companies competed led to lower prices within the market. Since then, however, the industry has changed drastically. In addition to retailers like Walmart and Target taking a large chunk out of the consumer market for stationary products and writing and printing supplies, online superstores like Amazon, along with business suppliers like ULINE have completely reshaped the office supply industry. The FTC admitted as much in 2013 when it approved the merger between Office Depot and rival OfficeMax, writing that “Our decision highlights that yesterday’s market dynamics may be very different from the market dynamics of today.”
The approval of the 2013 merger led to three very important outcomes. First, it meant that only two brick-and-mortar national office supply chains remained: Staples and Office Depot. Second, Both Staples and Office Depot began closing hundreds of stores due to decline profits while the online market increased in scale. Finally, in response, both companies increased its focus on large-scale business, corporate, and government clients. Many analysts believe that the FTC is less concerned about the first two issues than the third. Staples has earned about 40 percent of its $10.3 billion revenue this year through August 1st via large-scale clients, with Office Depot earning about the same percentage on its $2.9 billion during the same timeframe. The agency is asking for other office-supply companies’ input on the merger during its antitrust review. The FTC has not indicated as to which direction it is leaning, only that it is soliciting opinions.
The FTC has been conducting the review since the announcement was made in February, with both companies satisfying two required requests for communication. Staples executives have argued that online competitors like Amazon have caused a drastic alteration in the market, and that while virtually a terrestrial monopoly; the combined company would merely be a major competitor in the entire office-supply business. Still, the FTC is concerned that by combining the companies, the number of potential large-scale suppliers will decrease. The agency is concerned if the merger will lead to negative changes in the large-scale client sector. Royal Bank of Canada’s head of global procurement Peter Conrod likely summarizes the FTC’s internal debate with his divided opinion. Conrod told the Wall Street Journal, “Typically consolidation is good because it allows us to deal with fewer suppliers, but you get to a point where it’s too consolidated and you don’t have too much choice.” According to sources familiar with the case, a ruling on the merger is expected in mid-October, although the FTC could extend the timeframe to solicit additional opinions.
Sources:
Palm Beach Post – Jeff Ostrowski
Retail Dive – Daphne Howland
Wall Street Journal – Drew Fitzgerald and Brent Kendall
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