FTC Rejects Proposed Settlement in Staples/Office Depot Merger

After careful consideration, the Federal Trade Commission today rejected the proposed settlement in the Staples/Office Depot merger. Staples and Office Depot are two of the three largest office supply superstores in the country. The proposal, offered by Staples, would have required the divestiture of a total of 63 superstores to OfficeMax, Inc., the third office supply superstore.

"The FTC’s decision to ask a court to block the merger is about lower prices for consumers. If the merger is allowed to proceed, consumers will pay millions of dollars more for their copy paper, envelopes, pens and file folders," said William J. Baer, Director of the FTC’s Bureau of Competition. "According to Office Depot’s own ads, file folders cost $1.95 in Orlando, Florida, where it competes with Staples and Office Max, and $4.17 in Leesburg, Florida, some 50 miles away, where it is the only office supply superstore. Similar differences can be found for scores of products in cities across the country. If this deal goes through, in more than 40 markets, office supply prices will be a lot closer to those in Leesburg than to those in Orlando. That is what is wrong with this deal.

"The proposed settlement doesn’t resolve the competitive problem that would lead to these higher prices. The proposal to sell stores to Office Max doesn’t address cities where three superstores compete today but only two firms will remain after the merger," continued Baer. "Our data shows that in markets where three superstores compete, prices are significantly lower than in two chain markets. The proposed settlement also eliminates the possibility of increased competition in cities where Staples and Office Depot had planned to expand. And finally, the proposal would permanently eliminate Office Depot, the superstore that currently offers the lowest price."

According to the FTC, office supply superstores, unlike any other retail stores selling office supplies in the United States, offer consumers the convenience of one-stop shopping for a wide variety of office supplies, computers and computer related products, and office furniture at deep discount prices. The Commission said that the $4 billion acquisition would allow the combined firm, which would have approximately 1,000 superstores, to control prices for the sale of office supplies in more than 40 markets throughout the United States.

Staples opened the first office supplies "superstore" in the United States on May 1, 1986, in Brighton, Massachusetts. The company’s headquarters are in Framingham, Massachusetts.

Office Depot opened its first store in Ft. Lauderdale, Florida, in October 1986 and is based in Delray Beach, Florida.

On March 10, the FTC authorized its staff to seek a federal district court order to prevent Staples from acquiring Office Depot. The FTC will argue in court for a preliminary injunction on grounds that the Staples/Office Depot merger would violate federal antitrust laws by substantially reducing competition in the retail sale of office supplies by office supply superstores in various local markets throughout the country where each firm directly competes against each other. These markets include areas of California, Florida, Illinois, Kentucky, Maryland, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Virginia, Washington, Indiana, Utah and Washington, D.C. The preliminary injunction would prevent the merger from going forward until the conclusion of an administrative trial and any appeals on the legality of the merger. If the court grants the FTC’s motion, the Commission will have 20 days within which to determine whether to issue an administrative complaint. That administrative complaint would mark the beginning of the administrative trial process.

The Commission vote to reject the proposed settlement was 4-1, with Commissioner Roscoe B. Starek, III, dissenting. Commissioner Starek stated that he had reason to believe that the rejected settlement would adequately remedy the likely competitive problem arising from the proposed merger. Commissioner Mary L. Azcuenaga voted yes on the motion to reject the settlement on the ground that she did not find reason to believe that the proposed transaction violates the law.

Copies of the FTC complaint seeking a preliminary injunction will be available upon filing in court from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov (no period).

(FTC File No. 971 0008)