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.
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.