Why did a federal judge reject a Staples and Office Depot merger?

US District Judge Emmet Sullivan agreed with federal officials who argued the merger would violate antitrust laws by significantly reducing competition.

Jim Young/Reuters/File
A shopping cart is seen outside a Staples office supplies store in the Chicago suburb of Glenview, Ill.

A $6.3 billion merger between the two largest office supply chains, Staples and Office Depot, has been rejected by a federal judge. US District Judge Emmet Sullivan in Washington, D.C., agreed with federal officials who fought the deal, saying the merger would violate antitrust laws by significantly reducing competition in the office supply marketplace.

The ruling's main beneficiaries are large corporations that buy supplies such as paper and printer ink in bulk for their own employees. Had they merged, Federal Trade Commission (FTC) antitrust officials argued in the lawsuit, Staples and Office Depot would have created a monopoly with no incentive to negotiate low prices with its corporate clients, since there would be only one seller with the scale to serve those types of customers.

In a coup for antitrust officials, who also blocked a merger attempt between the two companies in 1997, Office Depot chief executive officer Roland Smith said that the retailer will not appeal the ruling. The two companies will end their merger agreement on Monday.

"Today's court ruling is great news for business customers in the office supply market," Debbie Feinstein, the head of the FTC's bureau of competition, said in an e-mail statement to Bloomberg. "This deal would eliminate head-to-head competition between Staples and Office Depot and likely lead to higher prices and lower quality service for large businesses," she said.

Mergers in sectors with few competitors tend to be bad for consumers, leading exactly to the outcomes Ms. Feinstein referenced, according to Diana L. Moss, president of the Washington, D.C.-based American Antitrust Institute, an advocacy organization that opposed the deal. 

"Any mergers that take place in a market with a few competitors are going to raise red flags," says Dr. Moss in an interview with The Christian Science Monitor.

"We now have a whole boatload of evidence that shows that prices have gone up" as a result of mergers in sectors like the airline industry, she said. After a decade of massive consolidations, that industry is left with four airlines – United, American, Southwest, and Delta – controlling about 85 percent of US flights. These airlines are under investigation now by the US Justice Department for colluding to keep airfares high.

Federal antitrust officials, who are nominated by the president and confirmed by the US Senate, are fighting troubling mergers more eagerly than they have over the past 25 years of "lax enforcement," as Moss characterized it.

Part of the reason is that they want to leave a legacy of being aggressive antitrust enforcers, according to Seth Bloom, former general counsel of the US Senate Antitrust Subcommittee. 

"The FTC and Justice Department have done a pretty good job with keeping up," Mr. Bloom, now president and founder of Washington, D.C.-based advisory firm Bloom Strategic Counsel, tells the Monitor. "They're showing themselves to be really tough." 

But their tough stance has not deterred consolidation attempts. In fact, federal regulators have been busy fielding mergers at a time when corporate consolidation activity has exploded in a variety of industries, spurred by cheap debt and pressure on companies to become more efficient in a tepid economy.

Last year was a record one for mergers and acquisitions globally, which totaled $5.05 trillion in value, breaking the previous record of $4.61 trillion in 2007, according to an analysis by Dealogic. Mergers of US companies made up half of the activity, at a value of $2.47 trillion.

There was Pfizer's proposal to buy Irish company Allergan, for instance, a $160 billion deal that was ultimately blocked by the US government for its tax-dodging implications. It would have been the largest health-care transaction and second largest deal on record, according to The Wall Street Journal.

Last year also brought the largest technology acquisition ever, when Dell offered to pay $67 billion for EMC, a move approved by US regulators. Also introduced in 2015 was the biggest beverage deal, worth $108 billion, between Anheuser-Busch InBev and SABMiller. The deal is still pending approval.

Just last week, the Federal Communications Commission approved Charter Communications' $79 billion acquisition of Time Warner Cable and Bright House Networks, which will create the world's second largest cable TV and Internet provider, according to USA Today. In that deal, federal regulators imposed conditions that will help protect consumers, such as requiring that Charter not charge its customers extra fees based on the amount of data they use for streaming videos and other activities. It also required that the company expand Internet access to 2 million more homes, and offer a cheaper broadband service to low-income households.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Why did a federal judge reject a Staples and Office Depot merger?
Read this article in
https://www.csmonitor.com/Business/2016/0511/Why-did-a-federal-judge-reject-a-Staples-and-Office-Depot-merger
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe