Regulators contest Staples combination with Office Depot

“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”, FTC Chairwoman Edith Ramirez said in a statement issued with the decision.

Shares in Office Depot tumbled ahead of a decision from USA antitrust regulators, who were expected to block the company’s $6.3bn takeover bid for Office Depot.

The Competition Bureau is challenging a proposed merger between Staples and Office Depot, saying the country’s office supplies industry is becoming too concentrated.

Even though Staples and Office Depot disagree with the FTC’s interpretation of the competitive landscape, the companies proposed divesting more than $500 million in commercial business in an effort to complete the transaction and unlock tremendous value for shareholders and customers.

Staples was emboldened to try again for Office Depot after that chain succeeded in buying No. 3 OfficeMax in November 2013 with no divestitures. Right off the bat, Staples would become poorer. “In this case, significant developments in the market for consumable office supplies have led us to approve a merger when we had blocked a similar merger sixteen years ago”.

That’s money that could be spent on continuing to close under-performing Staples stores in the USA, or investing in lower prices for consumers.

The acquisition would give Staples $39 billion in annual sales and, according to analysts, the best chance to salvage the specialty channel amid fierce competition from big-box and online discounters.

But the real concern for Staples stretches beyond having to cut a competitor a hefty-sized check. Shares of Staples also slumped, down 8% at noon.

The deal, announced in February, would have created the nation’s largest chain of office supply stores.

Shares of both firms fell after the announcement. ODP stock is down 15.7%.