The Federal Trade Commission has filed a lawsuit that looks to block the merger between Staples and rival Office Depot, claiming that the business combination of these two remaining major national chains for office supplies would lead to the elimination of competition in the market.
All the four current commissioners of the FTC supported the lawsuit, with Staples and Office Depot responding by stating that they plan to defend the proposed merger.
According to the companies, the FTC's lawsuit is based on a wrong analysis on the intensity of the competition in the office supplies market where Staples and Office Depot belong.
Since the announcement of the FTC, shares of the two companies plunged, with the price of Staples shares falling almost 14 percent and the price of Office Depot shares dropping almost 16 percent.
The lawsuit is the second time that the FTC has blocked the merger of the two companies. The first time that Staples and Office Depot looked to merge was in 1997.
The two companies are saying that the office supplies industry has gone through an evolution since then, with increasing competition coming from online stores and big-box sellers. This evolution was said to be acknowledged by the FTC a couple of years ago, when it approved the merger between Office Depot and OfficeMax, which was then the third-largest office supply chain.
The merger, the FTC alleges, would lead to higher prices and less options for big corporations that make purchases of office supplies in bulk amounts. Staples and Office Depot attempted to ease the FTC's concerns on the matter through an offer to shed corporate contracts worth hundreds of million dollars through a deal with wholesale company Essendant, but the commission did not change its mind.
"The combined company would generate significant savings, and we're committed to investing savings in lower prices for all customers," said Staples CEO Ron Sargent, but the two companies are still facing the task to convince a judge that the merger will not lead to problems in terms of competition in the market.
Staples and Office Depot will have to show that the market contains many other office supply companies, and that big business customers are sophisticated buyers that will be able to use their leverage to maintain price levels at an acceptable range.
Staples revealed its proposed $6 billion acquisition of Office Depot last February. The European Commission is also carrying out a probe into the merger, while antitrust officials in Canada have also filed a legal challenge against the transaction.
