Staples-Office Depot Merger Blocked by Federal Judge
After a lengthy battle in court, a federal judge blocked the merger of Staples and Office Depot on Tuesday, forcing the two companies to abandon their merger, Bloomberg reported. U.S. District Judge Emmet Sullivan sided with U.S. antitrust officials, agreeing that the combination of the two companies would affect competition in the marketplace.
In January, we reported that the two companies waived their merger-agreement date to May 16, allowing for the continuation of the ongoing court litigation with the Federal Trade Commission (FTC). However, in February, the European Commission, the executive body of the European Union, approved Staples' acquisition of Office Depot.
According to Bloomberg, Sullivan wrote that the FTC met its "burden of showing that there is a reasonable probability that the proposed merger will substantially impair competition in the sale and distribution of consumable office supplies to large business-to-business customers."
As a result of the potential $6.3 billion deal falling through, Staples' stock fell as much as 16 percent in New York on Wednesday, and Office Depot's fell 38 percent.
"Today's court ruling is great news for business customers in the office supply market," Debbie Feinstein, FTC's bureau of competition director, said in a statement. "This deal would eliminate head-to-head competition between Staples and Office Depot, and likely lead to higher prices and lower quality service for large businesses that buy office supplies."
Staples chairman and CEO Ron Sargent announced that the company will not seek an appeal following the verdict, and that it will terminate the merger on May 16.
"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," he said in a press release. "We believe that it is in the best interest of our shareholders, customers and associates to forego appealing this decision, terminate the merger agreement and move on with our strategic plan to drive shareholder value. We are positioning Staples for the future by reshaping our business, while increasing our focus on mid-market customers in North America and categories beyond office supplies."
Defense lawyers maintained that Staples and Office Depot would have to join together to contend with competition from Amazon and its Amazon Business arm, but Sullivan wrote that blocking the merger was "in the public interest."