Changes in the competitive landscape could pave the way for Framingham-based Staples to get a regulatory OK for its proposed $6.3 billion takeover of Office Depot — nearly two decades after the Federal Trade Commission nixed a merger of the No. 1 and 2 office supplies chains over concerns about higher prices for consumers.
Office Depot ended up merging with OfficeMax in 2013 in a $1.2 billion deal that took seven months for the FTC to approve. In its decision, the FTC noted the broader array of companies that sell office supplies, including Wal-Mart, Target, Costco and Sam's Club, and the office supplies chains' substantial loss of in-store sales to online competitors like Amazon.
"Both Staples and Office Depot have really carefully considered the anti-trust risk associated with the deal in concert with our respective legal advisers," Staples CEO Ron Sargent said yesterday. "We agree with (the FTC's) public statement following the closure of the (Office) Depot and (Office) Max investigation in 2013 (that) the market for the sale of consumable office supplies has changed significantly since 1997."
Still, Staples founder Tom Stemberg, who resigned as chairman in 2005, expects a "potentially long and nasty legal skirmish" with the FTC after it "created what's probably one of the biggest legal precedents in their history" with its 1997 decision.
"What's going to be curious is if they can walk away from that precedent by approving this deal or whether they'll probably figure out a way to fight it," he said on CNBC. "I think they have to fight it, and they'll jury-rig the market."
B. Riley & Co. analyst R. Scott Tilghman expects greater FTC scrutiny of the proposed merger given its sheer size. The FTC review likely also will put greater focus on the companies' commercial contract business, said Tilghman, but he expects the feds to sign off on the retail side of the merger.
"While some may argue that commercial office supplies is a highly fragmented business, we think large enterprise customers, large wholesalers like United Stationers and S.P. Richards, and the office supplies manufacturers are less enthusiastic about seeing significantly increased market share for the largest office supplies retailer," Citi analyst Kate McShane said in a research note yesterday.
Staples will pay Office Depot $250 million if the deal is terminated due to antitrust requirements.
The combined company would continue to be headquartered in Framingham and be led by Sargent.
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