Staples Ready to Offer FTC More Assets to Win Office Depot

  • Companies prepared to go beyond current divestiture offer
  • FTC meeting with companies before Dec. 8 decision deadline

Staples Inc. is ready to offer additional concessions to resolve U.S. antitrust concerns that its proposed takeover of Office Depot Inc. -- which would leave one national office-supply chain -- would threaten competition, according to two people familiar with the matter.

Representatives from Staples and Office Depot are meeting this week with Federal Trade Commission officials ahead of a Dec. 8 deadline for the agency to decide whether to approve the $6.11 billion deal, one of the people said.

Under the merger agreement, the companies said they would sell Office Depot assets with revenues of up to $1.25 billion to win antitrust approval. In negotiations with the FTC, the company has already offered to divest about half that amount, according to the second person.

As part of that initial remedy proposal, Framingham, Massachusetts-based Staples offered to transfer contracts to Essendant Inc., according to the person. Essendant is a distributor of office supplies and other products based in Deerfield, Illinois, that has expanded its wholesale business. 

Remedy Proposal

The proposal has encountered skepticism from third parties who have been contacted by the FTC about whether it would restore lost competition, according to another person. 

A likely scenario is for Staples to offer to transfer more contracts to Essendant in hopes of satisfying the FTC, the person said.

Spokesmen from Staples, Office Depot and the FTC declined to comment.

Essendant Chief Executive Officer Robert Aiken said on an earnings call in October that he couldn’t comment on a possible settlement in the Staples case but his company "would be open to acquisitions." An Essendant spokesman didn’t immediately respond to a request for comment.

Staples and Office Depot shares both surged more than 6 percent after Bloomberg reported on the companies’ stance. Office Depot closed up 1.4 percent to $6.63 in New York trading, while Staples fell less than 1 percent to $11.96.

The FTC’s investigation of Staples’ proposed takeover, which would unite the No. 1 and No. 2 office supply retailers, has focused on whether the creation of just one national supplier would harm competition and raise prices for large corporate customers who buy under contract. Two years ago, when the agency approved Office Depot’s merger with OfficeMax, it found that retail consumers have numerous options due to competition from Amazon.com Inc. and big-box retailers like Wal-Mart Stores Inc.

Merger Wave

The tie-up is part of a merger wave sweeping across industries from beer to drug stores to pharmaceuticals that’s under scrutiny from antitrust officials at the FTC and the Justice Department. The FTC could approve the merger with conditions or file a lawsuit in federal court seeking to block the deal if it thinks the companies’ settlement proposal doesn’t restore lost competition. The FTC could opt to conduct an administrative trial in its in-house court instead of going to federal court.

Staples reached an agreement in October with the FTC to extend the agency’s review period to Dec. 8. That agreement could be extended to give the both sides more time to negotiate an agreement.

Staples and Office Depot are also contending with an investigation by antitrust officials in the European Union. Staples has offered concessions, and the European Commission has set a deadline of March 9 to make a decision.

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