Staples Inc. and Office Depot Inc. are offering to transfer large corporate contracts worth roughly $600 million to wholesaler Essendant Inc., according to people familiar with the matter, in an attempt to mollify government antitrust concerns.
The Federal Trade Commission has spent about 10 months scrutinizing Staples’ $6.3 billion acquisition of rival Office Depot, amid concerns it would leave few competitive options for large corporations that buy office supplies in bulk.
The divestiture offer by Staples and Office Depot is aimed at persuading the FTC that corporate customers would continue to have options for procuring office supplies if they aren’t satisfied with the products, prices or services offered by a combined Staples-Office Depot.
The terms of the divestiture proposal could change during talks with FTC officials, who have been evaluating the proposal, people familiar with the matter said. It isn’t clear whether the concessions will satisfy the FTC.
Under the proposal, Staples and Office Depot would transfer to Essendant contracts they hold with smaller resellers that serve some of the nation’s largest businesses, people familiar with the matter said. These resellers include woman- and minority-owned office-supply providers like Brentwood, Tenn.-based Guy Brown Products, these people said. Some corporations commit to buying a certain amount of their office products from such firms.
Staples and Office Depot have served as the back-end source of supplies for some of these arrangements.
Under the proposed transfer, Essendant would become the new back-end supplier, giving the Deerfield, Ill.-based company a bigger footprint.
Representatives for Staples, Office Depot and the FTC declined to comment. Essendant and Guy Brown didn’t respond to requests for comment.
Under the merger agreement Staples and Office Depot signed in February, Staples is obligated to divest up to $1.25 billion of annual Office Depot business to obtain antitrust approval. Staples is scheduled to report its latest quarterly results on Wednesday.
The combined company would pull in nearly $39 billion in sales, roughly 40% of which comes from contract clients in North America.
Any antitrust fix would come as a relief to nervous investors. Office Depot shares are trading more than 25% below the value of the cash-and-stock offer—an unusually wide discount that reflects unease that the deal won’t be approved.
Essendant, known as United Stationers until last May, distributes an array of supplies aside from office products and has ruled out selling its wares directly to customers. But if the company expands its wholesale office-supply business, it potentially could exercise more buying power with manufacturers and in turn offer cheaper prices to merchants that compete with Staples and Office Depot for corporate business.
Essendant executives this year have played down the prospect of branching out from its traditional wholesaler role. But Chief Executive Robert Aiken was more ambivalent during a conference call last month after quarterly earnings dropped 31%.
“We would be open to acquisitions,“ Mr. Aiken said, ”but we also like our wholesaler role and think that’s an important role for us to play.”
One question for the FTC is whether a stronger position for Essendant and the merchants would effectively replace competition now being offered through head-to-head competition between Staples and Office Depot.
Under a current timing agreement between the FTC and the two companies, the commission is scheduled to render a decision on the merger by Dec. 8. That date, however, could be pushed back if the parties agreed to do so.
Staples and Office Depot are separately trying to navigate the antitrust approval process in Europe, where antitrust enforcers ratcheted up the pressure in September by launching their own detailed probe. The European Commission on Wednesday extended its deadline for a decision until March 2.