Staples and Office Depot Again Propose a Merger

On February $4,2015,$ Staples and Office Depot announced a definitive agreement between the two companies in which Staples would acquire all of the outstanding shares of Office Depot. Office Depot shareholders would receive cash and Staples stock in return for their shares of Office Depot stock. Based on the cash and stock offering, the deal values Office Depot $$6\mathrm{.}3$ billion.

This was the second proposed merger between the two companies. A $1996$ proposed merger between the two companies was challenged by the Federal Trade Commission $($FTC$)$ on the grounds that it would create monopoly power in the office supply market. In July $1997,$ a judge issued an injunction against the merger, and the two companies withdrew their plans. However, much had changed in the retail landscape between $1997$ and $2015.$

In December, $2015,$ the FTC filed an administrative complaint alleging that the merger violated antitrust law and would lead to significant harm to consumers. The following is an outline of the case argument presented by the FTC$.$

NATURE OF THE CASE

Staples and Office Depot are$$by a wide margin$$the two largest vendors of consumable office supplies to large $$business$-$to$-$business$($B$-$to$-$B$)$ customers $($i$.$e$.,$ business customers buying for their own end$-$use$)$ in the United States. Staples$$ and Office Depot$$s own documents state that they are the only participants in a $$two player$$ national market. They are the best options for most large B$-$to$-$B customers$$and the only meaningful options for some large B$-$to$-$B customers$$particularly those with facilities in multiple regions of the country. And they are each other$$s closest competitors for such customers. As Staples explained at an internal Leadership Summit, $$There are only two real choices for customers,$$ Staples and Office Depot. Office Depot similarly made clear to a customer that $[$o$]$n a national scale, Office Depot$$s competition is Staples.$$

Direct head$-$to$-$head competition between Staples and Office Depot yields substantial benefits to large B$-$to$-$B customers in the form of lower prices and better service. If consummated, the merger of Staples and Office Depot $($the $$Merger$)$ would eliminate that competition. Office Depot acknowledged this in April $2015$two months after the Merger was announced$$encouraging a large B$-$to$-$B customer to accept its $$best and final$$ offer promptly, stating, $$If and when $[$Staples$]$ purchase of Office Depot is approved, Staples will have no reason to make this offer.$$

By eliminating direct competition between Staples and Office Depot, the Merger threatens significant harm to a wide range of large B$-$to$-$B customers. Office supplies vendors sell and distribute consumable office supplies $($e$.$g$.,$ pens, staplers, notepads, folders, and copy paper$)$ to all manner of businesses across the United States. Employees of these businesses use consumable office supplies in connection with their jobs. As a result, businesses depend on vendors to provide consistent and reliable delivery of consumable office supplies so that their employees have the products they need to work productively and on a cost$-$effective basis.

Large B$-$to$-$B customers typically require an office supplies vendor with experience and a strong reputation for providing consumable office supplies to large B$-$to$-$B customers. These requirements are especially important for customers seeking delivery on a multiregional or national basis. Many large B$-$to$-$B customers require that their office supplies vendor provide a broad range of national$-$brand and private$-$label products, flexible and reliable delivery $($including desktop delivery$),$ high levels of customer service, customizable product catalogs, detailed utilization reporting, and sophisticated information technology $($IT$)$ interfaces for procurement and billing. Moreover, large B$-$to$-$B customers require those features and services to be part of the transaction, along with consumable office supplies at competitive prices.

Large businesses typically purchase consumable office supplies pursuant to contracts awarded through requests for proposal $($RFPs$),$ auctions, or bilateral negotiations. Staples and Office Depot generally compete head$-$to$-$head in such proceedings. They are often the two finalists in RFPs or other contests because they can obtain the lowest cost of goods from office supplies manufacturers and they possess similar networks of distribution centers, sales forces, and other services and features, such as strong reputations and experience, high levels of customer service, sophisticated IT$,$ and product utilization monitoring and tracking. Large B$-$to$-$B customers often use those similar offerings to play one competitor off the other to obtain lower pricing, other financial incentives, better service, and improved contract terms. Indeed, Staples and Office Depot frequently lower prices, increase discounts, and offer other financial incentives to take business away from each other, and