Staples, Office Depot likely to drop merger plans with judge’s ruling
WASHINGTON (AP) _ Staples and Office Depot will probably call off their plans for a merger within the next few days because of a court injunction blocking the union, say executives of the two office superstores.
Staples has spent more than $20 million in the last 10 months alone trying to close the deal, said Thomas Stemberg, the company’s chairman and chief executive officer.
``Without a doubt, it’s been a tremendous distraction as well as a tremendous expense to our organization,″ he said from Ireland, where he was on vacation. ``To pursue this for many more months would be a further distraction.″
Shares of Office Depot plunged 23 percent this morning, falling $4.50 to $14.93 3/4 on the New York Stock Exchange. Staples shares gained 93 3/4 cents, or 4 percent, to $24.18 3/4 on the Nasdaq Stock Market.
U.S. District Judge Thomas Hogan issued a preliminary injunction Monday, saying the merger could limit competition.
The Federal Trade Commission had sought the order, arguing that the $3.5 billion merger was anti-competitive and would lead to higher prices.
Lawyers for the office superstores, however, said the merger could actually lead to lower customer prices. They said their combined $11 billion in sales would account for only 5 percent of a diverse office supply market that includes other large retailers, such as Wal-Mart, mom-and-pop stationery stores and mail-order companies.
Stemberg said the boards of directors for both companies will review the judge’s ruling and decide whether to appeal.
But David I. Fuente, chairman and chief executive officer of Office Depot, said the judge’s order ``means the merger is now unlikely.″
The case has been closely watched as a gauge of how the government will regulate the growing phenomenon of superstores across the retail industry.
Staples, based in Framingham, Mass., announced last September it would acquire Delray Beach, Fla.-based Office Depot for about $3.5 billion in stock.
But the FTC objected in March that the two companies combined could control prices in markets in the 18 states and the District of Columbia where they are the only office-supply superstores.
The companies cut a deal to sell 63 stores to third-ranked competitor Office Max, to no avail. Staples and Office Depot still would have had more than 1,000 stores between them.
The companies had argued in court that customer prices could drop because of efficiencies created by the merger. Superstores can save money by cutting better deals with suppliers and distributors and consolidating overhead and advertising expenses, the companies argued.
But a former Justice Department antitrust economist testified that a merger would result in price increases of about 7 percent for office supply products.
The economist, Frederick Warren-Boulton, also showed a colorful pie-chart, produced by Staples last year for strategic planning. It illustrated that without the merger the company anticipated new competition from Office Depot in 76 percent of its markets by 2000, compared with 46 percent now.