USFTC: Sale To Essendant Won't Fix Competitive Issues with Staples Merger
The Federal Trade Commission says Staples and Office Depot's proposed sale of $550 million in commercial contracts to Illinois wholesaler Essendant "would not fix anything."
The regulatory agency made the statement in a brief filed Feb. 19 in U.S. District Court in Washington, D.C., that seeks a preliminary injunction to stop the merger from proceeding until after a scheduled trial May 10.
The FTC said the proposed divestiture by Staples and Office Depot would not position Deerfield, Ill.-based Essendant to compete for large business-to-business customers.
As the contracts expire, customers would be free to choose the combined Staples/Office Depot as their office supplier, rather than to continue with Essendant, the FTC said.
Staples and Office Depot said last week they had agreed to sell certain commercial contracts to Essendant.
When asked for comment, Staples' spokesman Kirk Saville referred to the press release issued about Essendant last week: "The acquisition of this business and related assets will significantly increase Essendant's presence with large corporate customers, improve Essendant's capabilities, and further enable independent dealers in combination with Essendant to more effectively compete for national account business.
Staples CEO Ron Sargent said the agreement "strengthens a national competitor, further enables independent office products dealers, and helps minority and woman-owned businesses compete for national commercial customers."
Spokeswoman Karen Denning for Boca Raton-headquartered Office Depot said she had no comment.
The contract sale to Essendant is intended to appease regulators and potentially U.S. District Court Judge Emmet Sullivan, who is set to preside over the trial.
In December, the FTC challenged Staples' $6.3 billion acquisition of Office Depot, saying it would stifle competition and raise prices for bulk buyers of office supplies.
The FTC noted in the brief that Staples' CEO displayed a poster in his office showing that Staples and Office Depot were the incumbent office-supply vendors for 94 of the Fortune 100 companies.
The brief said that large business-to-business customers agree with the FTC and noted the agency has sworn declarations from them that Staples and Office Depot are their two best options for office supplies, and that the two office suppliers compete head-to-head for their business.
Staples and Office Depot, which contend the merger makes economic sense as the market for office-supplies dwindles, are preparing to fight the FTC in court. The companies recently extended their merger agreement past the February deadline to May 16.
In its argument for a preliminary injunction, the FTC said that "allowing this merger to close before the merits proceeding is completed would irreparably harm the public interest. Staples would be free to begin integrating Office Depot immediately, accessing Office Depot's sensitive business information, laying off sales people, and approaching customers as a unified dominant supplier. … Any harm that customers suffer in the interim would be irreversible."
South Florida economist Ken Thomas said he agrees with the FTC's argument. "Selling some of their business to Essendant would be like allowing Walgreen's and CVS to merge based on the condition they sell off part of their business to some very small company like Navarros," he said. A smaller company simply can't be an effective competitor to a monopoly, Thomas said.
The companies' sale of contracts to Essendant is contingent upon completion of the merger. Essendant would pay Staples about $22.5 million for the contracts, which are with sizable companies. More than 25 percent of the revenue acquired by Essendant would be from Fortune 100 companies and about half the revenue would come from Fortune 500 companies, according to Staples.
Both office-supply retailers maintain that cost savings from combining the companies would benefit them, allowing them to reduce costs and restructure their businesses. Yet both chief executives Ron Sargent of Staples and Roland Smith of Office Depot have stated they can and will survive without the merger.