Office supply chains cancel merger plan

Judge blocks $6.3bn proposed marriage

A federal judge on Tuesday blocked a $6.3 billion proposed merger of Staples Inc and Office Depot Inc, dashing another huge deal and handing the Obama administration one more antitrust victory.

The decision is a setback for the beleaguered retailers, which have each endured years of slumping sales and increased competition from Amazon. com Inc and other rivals.

The Federal Trade Commission had sued the two companies late last year, arguing that combining them would effectively create just one dominant retailer focused on pens, paper clips and Post-it notes.

In a three-page order, Judge Emmet Sullivan of the US District Court for the District of Columbia agreed, writing that the pairing of the two would “substantially impair” competition in the business of selling office supplies.

Both companies said after t he ruling that they planned to end their merger plans.

Once fierce competitors, the office supply giants have struggled to compete as more people shop online. The growth of e-commerce has eroded the sales and customer base for many traditional brickand-mortar retailers.

Staples closed a combined 242 stores in 2014 and 2015, and expects to close another 50 stores this year, according to the company’s most recent annual report. For the year ending Jan 30, sales fell more than 6%, to $21 billion.

With the deal’s end, Staples also plans to cut $300 million in expenses and weigh a potential sale of its European operations.

Office Depot said it had closed 349 stores in 2014 and 2015, and had identified “at least” 400 retail stores for closing through 2016. Sales fell 10% last year, to $14.5 billion.

Shares in Staples fell 10% in after-hours trading, to $9.31, while Office Depot tumbled 26%, to $4.49.

It was the latest victory for government regulators, who have taken aim at big deals they say create juggernauts that would unfairly dominate their industries.

In a record-setting boom in mergers last year, nearly $5 trillion in deals were struck. But many of them represented consolidation in industries that, government regulators have said, were already thin on competition.

The US attorney general, Loretta Lynch, said in a speech last month that the Obama administration was worried about continued consolidation.

“Victories across a wide range of industries make clear that if our analysis leads us to conclude that a merger will restrict competition, we will not hesitate to intervene,” she said.

Earlier this month, the Justice Department successfully forced the oil service companies Halliburton Co and Baker Hughes Inc to call off their $35 billion merger.

The FTC also blocked an effort by Sysco Corp and US Foods Inc to merge, a deal that would have united two of the country’s biggest food service providers.

Other proposed transactions that fell apart under government opposition include AT&T Inc’s $39 billion bid for T-Mobile USA and Comcast Corp’s $45 billion offer for Time Warner Cable.

That crackdown has sent chills down the spines of many potential deal-makers and heightened caution in corporate boardrooms. In rebuffing a $90 billion takeover approach by Honeywell International, Inc, United Technologies Corp cited potential regulatory opposition as one reason to remain independent.

Some pending mergers, including the unions of four of the country’s biggest health insurers, face close review by the Justice Department and other regulators.

In the case of Staples and Office Depot, the two would have had about $37 billion in revenue and roughly 3,500 stores. In 1997, the FTC blocked a previous attempt by the two companies to combine.

The companies had fought back in court, arguing that joining forces was necessary with much-larger competitors like Wal-Mart Stores Inc and Amazon.com Inc. Other antitrust regulators, including in Europe, signed off on the deal after the two companies agreed to sell off certain parts of their businesses.

But by the end of the trial last month, Sullivan — who had questioned some of the government’s analysis of the merger’s effects on competition, as well as some of its legal tactics — had urged the two sides to settle.

In statements on Tuesday, both Staples and Office Depot said that they planned to move on from the failed merger. Under the terms of the deal, Staples will pay Office Depot a $250 million break-up fee.

“We are extremely disappointed that the FTC’s request for preliminary injunction was granted despite the fact that it failed to define the relevant market correctly, and fell woefully short of proving its case,” Ronald Sargent, Staples’ chairman and chief executive, said in his company’s statement.

“While we are respectful of the court’s decision to grant the FTC’s request for a preliminary injunction to prevent our merger with Staples, we are disappointed by this outcome and strongly believe that a merger would have benefited all of our customers in the long term,” Roland Smith, Office Depot’s chairman and chief executive, said in a separate news release.