A proposed deal to unite two of the country’s biggest office suppliers collapsed last week after a judge agreed with federal antitrust authorities that the merger would result in an unfair monopoly.
After the ruling shares in the two companies, Office Depot and Staples, plummeted 25 percent and 11 percent respectively.
Judge Emmet Sullivan of U.S. District Court for the District of Columbia thwarted the $6.4 billion deal on Tuesday, a triumph for the FTC (Federal Trade Commission), who said that merging the two office titans, who mainly supply paper and pens, would hurt corporate customers.
The FTC called the judge's decision "a great victory” and noted that "this deal would kill direct competition between the two companies and likely lead to increased prices and decreased quality service for large corporations that purchase office supplies," said Debbie Feinstein, chief of the FTC's Bureau of Competition in a press release.
Deal Eliminated
The merger was effectively killed after the federal judge ruled on the injunction as the FTC proceeds to challenge the deal in its administrative court. Roland Smith, the CEO of Office Depot, said it was unlikely the two companies would appeal the injunction and they would terminate the provisional agreement they have with Staples, effective immediately.
This is the second time a proposed merger by the two office giants has been blocked by the FTC. In 1997 another deal was on the table only to be eliminated by a lawsuit by the commission, suing the companies claiming the deal would wipe out the ability of large clients to bargain for prices. This is another landmark victory for the FTC who has been bombarded with proposed mergers this year intended to combine some of the nation’s largest companies across different sectors.
Tension Filled Case
It wasn’t all plain sailing for the commission as the judge often criticized the FTC for their sloppy handling of proceedings and was forced to frequently jump in to comfort witnesses after over eager cross examination. Some investors believed Judge Sullivan’s actions during the case may have been a sign that a favourable outcome was on the cards concerning the deal.
“You really don’t want to second guess a judge’s decision based on their actions during a hearing,” said Robert Barkley, Executive Vice President of Portfolio Management at Orix Trading. “Having said that, I am relatively surprised that the result went the way it did having observed Sullivan’s attitude toward the FTC in the course of the trial,” he added.
