Staples, Office Depot extend date of $6.3 billion merger, 16 Arkansas stores may be affected

After a year of seeking to join two of the nation’s largest office supply chains, Staples Inc. and Office Depot announced Wednesday (Jan. 20) they were extending the companies’ upcoming merger termination date to May 16 in the face of the Federal Trade Commission’s (FTC) recent efforts to halt the deal.

Staples and Office Depot first announced the $6.3 billion deal to combine into a single company on Feb. 4, 2015, about two weeks short of a full year. But the deal hit a wall on Dec. 7, 2015 when the FTC filed a federal administrative complaint charging that Staples’ proposed $6.3 billion acquisition of slightly smaller rival Office Depot would violate the antitrust laws by significantly reducing competition nationwide in the market for “consumable” office supplies sold to large business customers.

The FTC said that Framingham, Mass.-based Staples – the world’s largest seller of office products and services – and Boca Raton, Fla.-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.”

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, the FTC said. That business-to-business market is distinct from the more competitive retail markets for office supplies sold to consumers.

The complaint alleges that, in competing for contracts, 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.

ARKANSAS IMPACT
If the larger deal with Staples is eventually approved, it is highly likely that the $1 billion in savings will be achieved by similarly closing overlapping stores in markets where Staples and Office Depot compete against each.

Both companies were reluctant to divulge details of their Arkansas operations, but information on the companies’ website detail at least 16 Staples, Office Depot and OfficeMax locations in Arkansas, with Fort Smith, Conway, Northwest Arkansas and the Little Rock metro area each with more than one store location.

Staples spokesman Mark Cautela said Massachusetts-based office supply giant does not break out store count or staffing by region publicly aside from the “store locator” map on the company’s websites, which shows locations in Little Rock, Conway, Pine Bluff, Rogers, Fort Smith and Searcy. Cautela would not say how many employees worked at those Staples locations.

Juliane Embry confirmed information obtained by Talk Business & Politics that there were 12 Office Depot or OfficeMax retail stores across the state. Northwest had three stores, while two were located in the Little Rock/North Little Rock metro area. Benton, Texarkana, Conway, Jonesboro, Fort Smith and Hot Springs each had one location.

If the Staples-Office Depot does happen, a proposition that several Wall Street say now will be difficult, the combined company will have pro forma annual sales of nearly $40 billion, according to recent financial statements.

Staples says it has 79,000 full and part-time employees that work at its 1,900 locations worldwide, including 1,300 stores in the U.S. Office Depot says it employs more than 56,000 associates and serves consumers and businesses in 59 countries with more than 1,800 retail stores.

STAPLES, OFFICE DEPOT RESPONSE
Staples and Office Depot said the extension allows for the completion of ongoing federal district court litigation with FTC. The companies are working to extend financing terms for the deal and expect to execute the merger extension agreement once financing terms are finalized. Staples and Office Depot officials reiterated that the merger would deliver more than $1 billion of annualized synergies net of investments to provide increased value to customers by the third full fiscal year post-closing. In addition, the combined company be better equipped to optimize its retail footprint, minimize redundancy and reduce costs.

“This merger creates an unparalleled opportunity to better serve our customers and to deliver shareholder value,” said Ron Sargent, Chief Executive Officer of Staples. “We are committed to completing this transaction and look forward to a full and impartial judicial review.”

In early December, Staples and Office Depot officials sent out an “open letter” to customers in U.S. and Canada, making the case that the FTC’s challenge would hurt customers of both companies and jeopardize both office supplier’s efforts to compete in a rapidly evolving marketplace.

“It also ignores the vigorous existing and expanding competition Staples and Office Depot face from numerous strong competitors, including office products dealers supported by large national wholesalers, manufacturers selling office supplies directly to business customers, dealers in adjacent categories, cooperatives of regional players, Internet resellers, big-box chains, and club stores,” the companies said. “We plan to fight to complete this transaction.

Still, to help address FTC concerns, Staples proposed divesting more than $500 million in commercial contracts to an established competitor but that solution was rejected by the federal trade regulators. That followed Office Depot’s announcement on Aug. 4 that it had accelerated its U.S. plans to close 175 stores in 2015 and at least 60 in 2016 as a part of its $1.2 billion acquisition of rival OfficeMax in November 2013. That brought the total of stores closures following the deal to more than 400.