The Story Behind the Merging of Two Giants
Has Everyone Shaking
Presidential Politics Plays a Role
Three - Two - One - Not So Fast
Depot Drop $6.3B Merger After FTC Injunction
Office Depot Gets $250
Million Breakup Fee
Office Depot said they would drop their $6.3 billion merger
Tuesday after a D.C. federal judge agreed to block the deal on the
Federal Trade Commission's allegations the companies' tie-up
would dominate the market for business office supplies.
Tuesday's preliminary injunction comes after Staples Inc. and Office
Depot Inc. decided to present no defense to the agency's allegations
merger would harm competition to provide office supplies to the
country's largest businesses. Staples' CEO Ron Sargent said the
company would drop the deal rather than go through the FTC's
administrative trial, paying Office Depot a $250 million
"The court finds that plaintiffs have
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 decision said.
court ruling is great news for business customers in the office
supply market," Feinstein's, the FTC's head of the agency's
competition bureau, statement said. "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. law360.com
Russian Roulette Lawyers Get Shot With
Their Own Bullet
No Defense - No Staples Office Depot
In what will go
down as one of the biggest legal failures in retail history,
the story behind this failed merger is the one decision
that counsel made not to put forth any defense
whatsoever when it came time for Staples and Office Depot to offer
their arguments against the FTC's two weeks of witnesses.
From the beginning Staples and Office Depot conducted a campaign
against the FTC that almost reached personal attacks against their
lawyers and case. Starting with letters to all of their customers,
that "stopped short of actually calling the FTC stupid, but
was the inference from more diplomatically worded prose."
"The FTC's actions to stop this transaction are based on a
flawed analysis of the marketplace and a deep misunderstanding of
the competitive landscape," Sargent and Smith state in the letter.
"The FTC has cherry picked a few facts to fit its narrative and
support its case. In making its case, the FTC refuses to even
acknowledge the rise of new competitors, such as Amazon, and the
disruptive effects of the digital economy."
Then ending it
with their closing argument and only defense by saying the
FTC had "failed utterly" to prove the merger would cause a
definite antitrust market or any harm to competition to
large-businesses purchasing office supplies.
community was quite surprised and even shocked to a certain degree
over their decision not to offer a defense. With one article even
saying they must have a very close relationship with their clients
to be able to pull off that decision.
The Judge ultimately
disagreed and with no defense who knows what could have been. The
one thing that is certain is that the retail landscape in
that business sector will change drastically over the next few years
and the law firm who made that decision may be facing another law
suit or at least looking for a new client.
A Shrinking Business
1,000 Store Closings?
And Thousands of
Jobs Are at Risk
Depot merged with Office Max in 2014 they closed over
400 U.S. stores. While rival Staples began
closing 225 North American stores.
January Staples laid off
hundreds of employees, to
"simplify structure" regardless of the outcome of the proposed
merger at the time.
With Staples having 1,600 North American
stores and Office Depot showing 1,800 in total, one has to ask can
the market support these boxes? Certainly walking the stores one
doesn't see the crowds that once filled the aisles. As is the case
throughout retail now given the shift to online. But in that
specific business it seems more pronounced than in others from a
retail store perspective.
In following the case, the FTC
elected to focuse on the B2B office supply contracts business side
and really avoided the consumer purchases side of the business.
Thereby minimizing if not eliminating the online competition angle
from the case and Amazon.com. While offering McDonalds as their only
witness to support the need to keep the company's stores separate
for competitive pricing and easy access for their franchisees.
Focusing on the B2B side, the FTC offered regional office
suppliers and a wholesaler who said the two literally own that
industry already and together would end up dictating pricing and
making it impossible to compete.
But the fact remains that the
FTC never once considered the impact on the employee populations nor
did they recognize the massive change the traditional brick and
mortar retail industry is going through due to the shift to
e-commerce. Something that needed to be presented to the judge but
Regardless, the fact remains that the U.S. market
probably can't support 3,000 office supply stores. At least from
this writers prospective. But that would have been the case even if
they had merged.
So the bottom line is that this failed
attempt certainly looks as though it's increasing the risk factors
for both, Especially from the employee and store count prospective.
Even one analyst predicted the merger partners would
close 1,000 stores to cut expenses because roughly half Office
Depot stores are within five miles of a staples store.
with Staples most recent quarterly results showing sales down 6.9%
and Office Depot sales down 9% on top of consecutive quarterly
decreases going back well over two years this industry is facing
major disruption. Which will ultimately lead to, in this writers
opinion, hundreds if not over a thousand store closures and
thousands of employees being laid off. Probably more so then if they
And the real shame here is that it wasn't even
discussed in the hearings. The impact of not merging. Just my
thoughts - Gus Downing
The 800-Pound Gorilla - The Amazon Impact
Sitting in the weeds -
Amazon Helped FTC Push the Knife
Seems like the
whole industry is scared of Jeff Bezos. He makes a statement,
starts a new business effort and the industry flinches as if a
monster appeared under the bed.
Every retail channel is under
attack and no one is immune to Amazon's impact. From books to high
fashion, Amazon is breathing down the necks of every CEO and
retailer in North America.
In this case the FTC actually
presented Amazon's new 'Amazon Business' services, just started in
April 2015, as an under developed not ready for prime time new
business that is focused on small businesses and therefore can't be
used as a direct competitor in defense of the merger. They actually
used them as one of their witnesses to show that Amazon's model
isn't a threat to the two big shots and therefore helping to justify
the FTC's position.
That's right a less than one year old
business is a primary focus of a $6.3 billion dollar merger of two
Certainly the judge questioned virtually every FTC
witness about using Amazon Business and found the business was
indeed not developed nor ready to service large businesses and the
FTC added the element of immediate need on the part of the
businesses being able to just run up to the nearest store that
Amazon simply can't fulfill.
The Amazon executive who
testified on behalf of the FTC appeared to be somewhat evasive and
non-committal. Both during the FTC's earlier investigation and while
giving testimony. In that he redacted his initial declaration and
struck out statements about
Amazon's lack of control over its third-party sellers and
statements that downplayed the company's ability to introduce
features like curated catalogs and contract-specific pricing in the
next two years. He said he felt that Amazon had controls in place
over those sellers and could introduce the features on that list
before the two-year deadline.
"We cannot commit to not
having these available in two years," Wilson said to the judge.
doesn't want to disclose its internal marketing plans and business
plans to the world, so there's a bit of a tension there.
the end of the day was Amazon sitting in the weeds hoping these two
wouldn't merge and come out weaker? It would make sense and it
wouldn't be surprising. Especially with the rumors that Amazon may
be looking to open 400 stores themselves and develop an air cargo
No retailer is immune to Amazon and this business
sector, which Amazon only got into last April, is shaking at the
very thought that Amazon is coming. And the FTC might have made it
easier for them. Just a thought - Gus Downing
The Unions - The Administration - The
Anti-Big Business Mentality
presidential politics does play a part in our every day lives as
this "case underscores the resistance of Obama administration
appointees to proposed deals they believe will further concentrate
markets and harm consumers."
The American Postal Workers
Union "vigorously opposed" the "monopolistic and unlawful"
Staples-Office Depot merger before the U.S. Department of Justice
and the Federal Trade Commission saying it would cost them jobs as
well due to plans to shift USPS work to Staples in order to reduce
employment and ours.
There were others as well opposing the
merger that at one point Staples tried to identify by asking the FTC
to no avail.
So how much did presidential politics play a
role? With the campaign's and elected officials focused on the
minimum wage, overtime pay, on-call scheduling, and a host of other
issues did in fact they play a role? The anti-big business mentality
may have just shown itself. The shame is it'll cost even more jobs.
Staples to cut $300 million in annual
costs and explore alternatives