Posted on USAToday.com | May 11, 2016
Written By Nathan Bomey and Kevin McCoy
Shares of Staples and Office Depot nosedived Wednesday after their $6.3 billion merger deal collapsed.
Investors flocked away from both retailers after the office supply giants scrapped their deal in the wake of a federal judge’s decision to issue a temporary injunction blocking the accord. The judge ruled on objections raised by the Federal Trade Commission.
Office Depot shares (ODP) plummeted 40.4% to close at $3.63 while Staples shares (SPLS) fell 18.3% to $8.46.
The merger deal’s demise casts a cloud of uncertainty over the next steps for each retailer. The Obama administration had challenged the deal on anti-competitive grounds.
It was the second time in 19 years that the companies called off a merger after federal regulators raised antitrust concerns.
Debbie Feinstein, director of the FTC’s competition bureau, characterized the ruling as “great news for business customers in the office supply market.”
“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 that buy office supplies,” said Feinstein.
In a statement, Office Depot CEO Roland Smith expressed dismay and said the merger deal would formally end May 16.
“While we are respectful of the Court’s decision to grant the FTC’s request for a preliminary injunction to prevent our merger with Staples, we are disappointed by this outcome and strongly believe that a merger would have benefited all of our customers in the long term,” said Smith. “We do not intend to appeal the Court’s decision and the two companies plan to terminate the merger agreement.”
Staples CEO Ronald Sargent said the judge approved the FTC’s request “despite the fact that it failed to define the relevant market correctly, and fell woefully short of proving its case.”
Staples said under the terms of the merger agreement, it will pay a $250 million break-up fee to Office Depot. Staples also says it no longer will sell more than $550 million in its large corporate contract business to another office products company, Essendant, as part of the Office Depot merger agreement.
U.S. District Judge Emmet Sullivan’s ruling said the FTC “met their burden of showing that there is a reasonable probability that the proposed merger will substantially impair competition in the sale and distribution of consumable office supplies to large Business-to-Business customers.”
The FTC also provided sufficient evidence to show a preliminary injunction halting the ruling was “in the public interest.”
Emmet’s ruling said he plans to give attorneys for the companies a sealed memorandum on Wednesday that details the legal rationale underlying his decision. The judge wrote he would seal the document initially because it contains “competitively sensitive information.”
Emmet instructed attorneys for the companies to meet and propose redactions to the legal memorandum by Monday. The judge wrote that he plans to consider the proposed deletions, and then issue a public version of the memorandum.
