The Federal Trade Commission voted yesterday to try to block the merger of two of America's largest office supply superstores, saying that consumers would pay more for pens and fax paper in areas without competition.
In an unusual move, the two companies, Staples Inc. and Office Depot Inc., said they would "vigorously contest" the FTC decision.
Office Depot's stock lost 25 percent of its value yesterday, falling $5.50 to $17.125 on the news. Staples, based in Framingham, Mass., is considered the stronger of the two companies. It saw a drop of $1.3125 to close at $23.25.
"In markets like Baltimore and the District of Columbia, where they compete, prices are 5 percent to 15 percent lower. What concerned us is that if you eliminate the competition people will pay more," said William J. Baer, director of the FTC's Bureau of Competition.
Office supply superstores, unlike other retailers, the FTC said, offer consumers the convenience of one-stop shopping for a wide variety of office supplies, computers and office furniture at discounts.
The FTC said that Staples' $4 billion acquisition of Delray Beach, Fla.-based Office Depot, which would result in a company with more than 1,000 stores nationwide, would cause a lack of competition and price increases in 18 states, including Maryland and Washington, D.C.
The companies argue that rather than raising prices, a merger would keep prices down.
"Staples and Office Depot are two of the best friends American small businesses and home offices have ever had: Both Staples and Office Depot have 10-year track records of cutting office supply prices -- the merger will create tremendous cost savings and efficiencies," Thomas G. Stemberg, chairman and chief executive officer of Staples, said in a news release.
To date, the delay has cost American consumers more than $100 million, and further delay keeps $40 million per month of savings from consumers, Stemberg said. The companies had planned to complete the merger on Feb. 25, but delayed it to give the FTC more time to compile data.
Office Depot's and Staples' combined share of the office products market is 5 percent to 6 percent, according to the companies. Both have a large presence in Maryland: Staples has 22 stores, and Office Depot has 11 stores.
The companies' refusal to accept the FTC decision is unusual, according to Donald I. Baker, an attorney with Baker & Miller PLLC, who was formerly head of the antitrust division at the Justice Department.
In most cases, he said, "the FTC growls at the parties and may threaten suit, and then the thing is ultimately settled by the parties agreeing they will divest or spin off a part of the company."
The FTC will go to court to seek a preliminary injunction to stop the merger. "If the FTC had some eye-catching documents that really seem to show that this merger would result in price rises, then I think they have a basic, but not overwhelming, chance," Baker said.
If the FTC wins the injunction, it could take between 18 months and two years before the case would go to trial before an administrative law judge.
"From a business standpoint, it is a major disruption," Baker said.
The two companies could swap stock and operate under a "hold separate order," which would prevent them from combining the two companies completely during the period of the litigation, so that if Staples lost its fight with the FTC, it could sell Office Depot.
This is the second time in less than a year that the FTC has said it would fight a proposed mega-merger.
In April, Rite Aid Corp. abandoned its $1.8 billion bid to buy Revco D. S. Inc. in the face of opposition from the agency. Last month, CVS Corp. said it would acquire Revco for $3.7 billion in stock and assumed debt, pending FTC approval.
Pub Date: 3/11/97