May 11, 2016

       

 
   

The Story Behind the Merging of Two Giants
 Amazon Has Everyone Shaking
Presidential Politics Plays a Role


Three - Two - One - Not So Fast

Staples, Office Depot Drop $6.3B Merger After FTC Injunction
Office Depot Gets $250 Million Breakup Fee

Staples and 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 the 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 breakup fee.

"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.

"Today's 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 Merger

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.
 
The legal 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. law360.com

 

A Shrinking Business
1,000 Store Closings? And Thousands of Jobs Are at Risk

When Office Depot merged with Office Max in 2014 they closed over 400 U.S. stores. While rival Staples began closing 225 North American stores.
 
This past 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 wasn't.

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.

Now 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 had merged.

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 giants.
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. law360.com

But Amazon doesn't want to disclose its internal marketing plans and business plans to the world, so there's a bit of a tension there.

At 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 fleet.

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

Yes, 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. wsj.com philly.com

 
Staples to cut $300 million in annual costs and explore alternatives

 


 

 
 

 
 

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