Shares in Office Depot tumbled ahead of a decision from U.S. antitrust regulators, who were expected to block the company’s $6.3bn takeover bid for Office Depot.
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The companies intend to show that the FTC underestimates the disruptive effect of new competitors in the digital economy and ignores the vigorous competition Staples faces from numerous competitors, including office products dealers, manufacturers selling office supplies direct to business customers, dealers in adjacent categories, cooperatives of regional players, Internet resellers, big-box chains and club stores. Further, the complaint alleges that by eliminating the competition between Staples and Office Depot, the transaction would lead to higher prices and reduced quality. Meanwhile, European regulators have until March 9 to make a decision, so even a positive result from the FTC doesn’t guarantee that the deal will go through.
Staples needs Office Depot to increase its market share in what has become a highly competitive office supplies market. Office Depot is also trading heavily, as 22 million shares exchanged hands, as opposed to an average daily trading volume of 5.94 million shares.
The merger would create a retail chain with about $39 billion in revenue and thousands of stores. Starboard had pressed the companies to combine to better weather competition from retailers including Target Corp.
Office Depot Chairman and CEO Roland Smith said Staples Inc. and Office Depot Inc. plan to pursue legal options in order to complete the deal.
Staples announced its proposed acquisition of Office Depot for more than $6 billion in February.
It’s the second time the FTC has attempted to block a merger of the two companies, after a successful ruling in 1997.
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It was that reasoning that the FTC used a few years ago to approve the merger of Office Depot and Office Max. In that case, the FTC said the market for office supplies had changed significantly.
