The Federal Trade Commission (FTC) has filed an administrative complaint charging that Staples, Inc.’s proposed $6.3 billion acquisition of Office Depot, Inc. would violate the antitrust laws by significantly reducing competition nationwide in the market for “consumable” office supplies sold to large business customers for their own use.
Framingham, Mass.-based Staples – the world’s largest seller of office products and services – and Boca Raton, Florida-based Office Depot are each other’s closest competitors in the sale of consumable office supplies to large business customers, according to the complaint.
“The Commission has reason to believe that the proposed merger between Staples and Office Depot is likely to eliminate beneficial competition that large companies rely on to reduce the costs of office supplies,” said FTC Chairwoman Edith Ramirez. “The FTC’s complaint alleges that Staples and Office Depot are often the top two bidders for large business customers.”
“The agency deserves enormous credit for protecting competition and consumers,” said American Antitrust Institute President Diana Moss.
Moss said that the case bears many similarities to the landmark Sysco-US Foods case, where in June 2015 the FTC successfully enjoined the proposed combination of the national broadline foodservice distributors.
The court sided with the agency, citing the merged firm’s ability and incentive to “profitably target a subset of customers for price increases” as an appropriate basis for enjoining the merger.
“You have to hand it to the FTC for consistency,” said AAI general counsel Randy Stutz.
“It is holding firm to the conviction that competitive harm to targeted groups of customers will not be tolerated.”
The Sysco-US Foods and Staples-Office Depot deals were both in markets already so concentrated that the parties apparently struggled to identify viable buyers for purposes of crafting a divestiture remedy. “3-2 or 2-1 mergers in highly concentrated markets are generally unfixable,” Moss said.
“Trying to use divestitures to facilitate entry, or to prop up a smaller rival is risky and almost doomed to failure.” Moss cited to problems with divestiture remedies in the recent mergers of Safeway-Albertsons and Hertz-Dollar/Thrifty as growing evidence of the difficulty of fixing mergers in markets with only a few competitors.
The AAI has been chronicling the side effects of increasing concentration across a range of industries, and the difficulties it has posed for merger enforcement, including in crafting remedies.
According to the FTC complaint, many large business customers buy consumable office supplies for their own use under a contract.
In addition to a wide range of office supplies at competitive prices, the vendor provides them with fast and reliable nationwide delivery, dedicated customer service, customized online catalogs, integration of procurement systems, and detailed utilization reports. That business-to-business market is distinct from the more competitive retail markets for office supplies sold to consumers.
Consumable office supplies include items such as pens, pencils, notepads, sticky notes, file folders, paper clips, and paper used for printers and copy machines.
The complaint alleges that, in competing for contracts, both Staples and Office Depot can provide the low prices, nationwide distribution and combination of services and features that many large business customers require. The complaint further alleges that, by eliminating the competition between Staples and Office Depot, the transaction would lead to higher prices and reduced quality.
The complaint also asserts that entry or expansion into the market – by other office supplies vendors, manufacturers, wholesalers, or online retailers – would not be timely, likely, or sufficient to counteract the anticompetitive effects of the merger. Finally, the complaint asserts that purported efficiencies would not offset the likely competitive harm.
The FTC has authorized staff to seek in federal court a temporary restraining order and a preliminary injunction to prevent the parties from consummating the merger and to maintain the status quo pending the administrative proceeding.
Throughout the investigation, Commission staff cooperated with staff of the antitrust agencies in Australia, Canada, and the European Union.
The Canadian Competition Bureau also filed an application to block the transaction with Canada’s Competition Tribunal.