Staples SPLS continues the tradition of buying up office supply players vs. operating a profitable business. The past giant of office supplies has always borrowed big money to buy little players within the office supply marketplace. At times they borrow billions to buy big players like Corporate Express that spreads across the world. Staples SPLS owes billions of dollars at very high interest rates, they import most everything they sell and have Chinese speaking managers roaming all over China.
The merger of Staples and Office Depot, is one of the largest small business opportunities in America today and those fast moving and quick small business owners can cash in on Staples and create millions in new profits. NDITC Research and Development, Joyce Dorothy Parker Ph.D. opines about the largest office supply market merger in history, maybe.
Years ago America enjoyed thousands of smaller office supply stores where local business owners, teachers, students and mothers could go buy a nice real wood office desk and chair, a pack of pens and maybe an inkjet cartridge but Staples SPLS, Office Depot ODP and Office Max OMX changed all that years ago and its not been for the better. The little office supply store is gone and buried under the massive Staples, Office Depot and Office Max operations that are failing the market. Now the cities, towns and villages don't have a friendly local office supply store and the big box boys are shutting down hundreds of their giant bankrupt stores, so why make the problem bigger?
The Staples SPLS plan was to buy everybody out, take over the local markets and then consolidate their holdings. Once you control the markets you control the price so go buy a ream of paper at Staples SPLS and see what a merger does to price. A pack of $2 paper is now $10 and if the items you want are not on sale they're five times the normal rate. Staples is not the place for a bargain, it's just another place, not called Amazon and they have perfected the bait and switch retailer game.
They take in used empty inkjet and toner cartridges, chew them up and then force their customers to buy more expensive inkjet cartridges, creating fabulous cash profits while keeping foreign ink and toner cartridge factories very busy on the cheap.
You see, Staples never earned the customer, they simply bought them when they bought out local business owners that understood their community needs.
They don't make anything as they hire Chinese slave type labor to make their products through vendors, even some products are designed by Staples but nothing made in America. After a merger you can expect thousands of employees to be laid off and enter the welfare rolls of the Obama administration, noting that Staples is a big Democratic DNC supporter.
Staples has not been good for America, low paying jobs, part-time, no benefits, no heat in the winter and always under constant threat of termination doesn't make Staples a nice place to work or shop. They are suspected of having tiered pricing, little guy pays a lot, middle customer less and the giant customers get everything slightly above cost. Staples became the famous village idiot when it was discovered that their New York State Contract sold many expensive items for a single penny, we remember it as a joke in the industry, now they talk about profits.
Office Depot, Office Max, Staples and now Wal-Mart, Costco, Best Buy, Target, and online super power Amazon all have a piece of the paper and pen business but listen, it has very little to do with the paper and pen business. Paper, copier and printer paper is sold mostly at cost and does not generate bottom line profits. They offer cheap paper so you'll be silly enough to buy very expensive inkjet and toner cartridges. Maybe you'll buy some cheap almost wood furniture made in another foreign factory using female labor, child labor, poor working conditions and harsh management to deep the prices down and their profits up.
Staples, Inc. (SPLS), America's largest office supply retail chain, selling communist goods, took a bold gamble on Wed., or did it. Every drowning man will grasp to that one floating straw of grass, while announcing a $6.3B USD bid for Office Depot, Inc. (ODP) America's only other major dedicated office retail chain the customers will pay the price. Combined giants must shrink, they call it synergy, and thousands of people will be laid off and hundreds of retail stores will close. Office Depot and Staples are now in a full head on race to the bottom and with a merger they both will fail at the same time. Never to be seen are the agreements, signed and sealed, to protect the golden boys and girls at the top of both organizations. Now that they've signed their name, agreed to merge, they will all, most likely, receive millions of dollars of stock and cash if they can pull this off.
The big dollar investor Starboard Value tossed the money in the hat and started to call the shots and he did it at Office Depot and Staples. He wants the two giants to combine, jump up in stock value and then most likely bail out with an enormous amount of profits.
Starboard Value is doing the same thing at Yahoo, sell off the big parts and create a capital gain that would even make Washington D.C. greedy.
The deal offers Office Depot shareholders $7.25 USD/share in cash per share, plus 0.2188 shares of Staples stock per share of Office Depot stock. The total valuation is around $11 USD per share -- an appealing 45 percent premium over recent trading values (~$7.60 USD/share). If you're just counting the money, it's not a bad deal for Office Depot but the hourly employees will be out in the cold, jobless, on food stamps and wondering what happened to free enterprise and competition? Since Staples doesn't play with cash they will surely borrow billions thus pressuring their cash flow to the extreme. Staples loves to borrow money like the government.
Despite the appeal to shareholders from a dollar value standpoint there's a lot of concern, however, that the deal won't go through because of the damn government. Staples is tight with the DNC and Barack Obama and big state governments so maybe they can lie this to reality?
I. History Repeats again so read this whole thing.
If allowed to complete the acquisition, Staples would gain a virtual monopoly on large office goods orders in North America - which is never good, Staples buys up competitors, consolidates and region and then jacks up the retail prices- so they expect to face intense scrutiny (for public viewing only) from federal regulators, including possible lawsuits from the U.S. Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ), at least for show.
Office Depot and Staples are looking to merge, yet again, so who cares?
To some this may seem like history repeating itself. Back in the Bill Clinton Sex Socialist Scandal era, in 1997, Staples made a $4B USD bid to acquire Office Depot. The FTC voted 4-to-1 to block the bid. President William Jefferson "Wild Bill" Clinton's (D) FTC competition director, William J. Baer, cheered at the time as paper would be cheap and crude oil would be high.
The FTC’s decision to ask a court to block the merger [was] about lower prices for consumers so you must wonder why it would be approved today? If the merger [was] allowed to proceed, consumers [would] pay billions of dollars more for their cheap copy paper, plain white envelopes, Chinese pens and manila file folders... Consumers won the day, kind of.
Competition has been preserved. So when Staples could not buy Office Depot they just churned along, borrowed more and more money, bought more little guys, built distribution centers, wondered about ecommerce and the internet and set up their three tier pricing, real people sales force, I.T. services in India, designed a few products, implemented a fake like recycling and rewards inkjet and toner cartridge program but then 2007-2008 recession hit them right in the face.
One day, people just stopped buying. The stock market plunged thousands of points, politicians screamed out their solutions, massive job loss, inventory piled up and no customers makes a really bad employer and it had a name, everybody. Staples did the only thing they knew, get rid of people, force production higher and higher and sell high profit margin items. Staples owned Corporate Express, once proud and successful, and Quill, once a big player so they went about their own Staples business combination trying to make everything work, with less people, more and more imports, fake rewarding, catalogs, internet, membership cards and everything else the store retailers could figure out and it was mostly wrong in the internet age. Making it easy was a very tough job and the train was coming straight at them from the other end of the tunnel.
At the time the FTC noted:
Staples and Office Depot are two of the three largest office supply superstores in the country. According to the FTC, office supply superstores, unlike any other retail stores selling office supplies in the United States, offer consumers the convenience of one-stop shopping for a wide variety of office supplies, computers and computer related products, and office furniture at deep discount prices. In the end, a court order from the U.S. District Court for the District of Columbia (USDC-DC) blocking the acquisition was secured and the deal was scuttled.
The FTC will evaluate the proposed merger for antitrust concerns. Now, nearly two decades later, lots of spilt milk, lots of water under the bridge, Staples is again entering into the delicate voodoo dance, watch my left hand, and trying to secure regulatory (big government) permission to merge. If it fails, it will have to pay Office Depot $250M USD under terms of the deal (that's roughly a quarter of profit for Staples). So why would Staples gamble $250 million if the government doesn't approve the deal? Surely, the Obama socialist government will allow limiting competition?
The Obama administrative government, socialist at best, communist at worse, could care less about the price of ink, toner, pens and paper so with the right stuff in the right hands Staples could most likely get what it wants. You don't bet $250 million dollars without checking with the government first, so everybody should be looking at Congressional stakeholders, stockholders, consultants and follow the money trails.
II. Competition? You're not talking about Amazon?
Some aren't convinced that the deal will be possible because they don't understand back rooms filled with smoke or have never had a meeting with Ron. Nice guy, a little slow to pull a trigger but, his new boss is Starboard Value and he knows it. Play ball or get off the field is the motto of Starboard that put up $500 million and will earn more than that if the deal is completed. Staples co-founder and former Chairman and CEO Thomas G. "Tim" Stemberg told the USA Today in an interview today:
I think they [the FTC] have to fight [the merger]. [There will] potentially [be] a long and nasty legal skirmish but Stemberg knows little and got lucky. Stemberg started the company but didn't have the cash or guts to grow it so big boys and big money jumped in and created this massive Staples that is failing today. Stemberg did the right thing, make it big, sell your stock and retire with piles of money and play the big shot. That is the formula that Starboard Value is playing, same game.
Stemberg should know -- he tried futilely to pull off such a bid back in 1997, as Staples' chairman at the time.
Tom Stemberg, former CEO of Staples, knows how hard it is to push this kind of deal through.
In spite of the business and legal skepticism, activist hedge fund cash investor Starboard Value LP believes it can accomplish what Stemberg could not, in light of new competitors and a shift in socialist regulatory landscape thanks to Barack Obama, Nancy Pelosi, Harry Reid and they better hurry because they're Republicans roaming the halls of Congress, in big numbers.
Starboard poured roughly $550M USD into Staples stock at prices of $12 to $14 USD/share last year, getting roughly a 6 percent stake -- enough to make it the largest institutional shareholder.
Starboard isn't the boss but a six percent stake gives them a seat at the table, just not the front spot. We can imagine Ron offering them coffee and cookies wondering if he should clean up his office? Staples stock has since risen to around $17 USD/share, making Starboard's investment worth roughly $170M more than its buy-in a 30 percent gain but that's not enough.
Most people would think a $170 million dollar profit is a good days work but there's a lot of money left on the table. What would happen if you shut down 500 to 700 more retail stores, had a giant yard sale across America, dumping the inventory?
You would have a giant jump in gross sales, less costs for stores, thousands of people off the payroll and a stock price that would be hot to trot for about six months to a year? Starboard Value, a neat name, could easily walk away with a billion dollars or more , don't you think?
Starboard Value LP lots of cash looking for deals, Starboard isn't about to cash in yet because the stock speculation will create a fortune. Silly investors will ride out the wave up and will be destroyed by the ride down. Starboard will know when to sell out the investors and cash in, really big pay day.
Starboard Value also poured $500M into Office Depot stock; good for about a 10 percent share. Starboard wants a merger, really bad.
Some factors are working to Starboard's big advantage. Staples does today face indirect competitors but they're not new competitors like they complain. Staples was caught off guard as their executives are too slow, too big to fail, dropped the ball and didn't watch the market. Amazon and Wal-Mart didn't start yesterday they've been selling for a long time.
Among these include low ball budget retailers like Wal-Mart Stores Inc. (WMT) another Chinese super store, and online retailers like Amazon.com, Inc. (AMZN) who has about two million vendors supplying their customers.
While these players AMZN WMT lack the very expensive high-volume enterprise internet orders that Office Depot and Staples push, they do compete with the office chains for smaller home based or small business buys.
The fact is, you don't need Staples or Office Depot stores if you own a computer.
Staples will ship tens of thousands of orders tonight to their customers at a very large price.
They have hundreds of robots running around (KIVA) moving inventory to pickers (Lazy Low Paid Humans) to toss in the boxes that will fill trucks from coast to coast.
The cost of inventory, retail distribution, fulfillment and overall order processing is killing the dream of internet profits because at the end of the day everything is physical.
KIVA robots were a big shot in the arm for Staples until Office Depot set up their own robots and then Amazon bought KIVA killing off the advantage forever.
Office Depot vs. Staples
In 2014 the online office goods market brought in $9.2B roughly or 24 percent of the overall $38B U.S. market for office supplies. Now $38 billion is a big pie but they are now thousands of little internet sellers taking tiny little bites without all the expenses. The little guy earns cash profits on every order while the big boxes OMX SPLS ODP BB WMT TGT COST AMZN struggle to carry the massive inventory, ship the right item, deliver it on time and make a buck. It seems little is really big right now and in no way can Staples or Office Depot ever compete with a guy working out of his garage with a web site.
Staples, in particular, is relatively savvy or smarter in the online space and continues to invest millions to catch up to Amazon but you might expect they're doing it wrong. Staples is in the process of building the next system to fail.
According to trade publication Internet Retailer, Amazon and Apple, Inc. (AAPL) are #1 and #2 in online retail, but Staples is behind, in third place. The difference is being number one and Staples is striking. It just sounds better when Staples advertises they are number two or so. Office Depot was ninth in the ranking. Staples shouts they are the number two internet retailer which is really kind of true but Amazon is so massive making Staples really tiny on the web.
Overall large orders in business supplies (cleaning supplies, light bulbs, pens, paper, post-it notes) account for roughly 37 percent of the annual dollar revenue for both companies, roughly $6.2B in gross dollar revenue for Staples and $4.6B gross for Office Depot. Staples is really pushing cleaning supplies, like mops, brooms and stuff like Wal-Mart sells for almost nothing. When their small business customers realize that they continue to pay way too much for way too little you might expect Staples sales to fall, quickly.
For some reason Staples thinks that Amazon is standing still and Wal-Mart will go to sleep as Staples takes over the world and no new competitors will enter the market. It doesn't take a lot of brains or money to sell brooms and mops and some guy and gal are stocking their garage right now. Anybody can buy cheap communist products from China.
III. The Big Three of Office Retail will die on the vine, so don't buy it.
America's three largest office supply retailers all launched around the same time. Staples incorporated in 1985 and opened its first store in 1986 in Massachusetts. That same year Office Depot formed and opened a store of its own in Florida. In 1988, Ohio-based OfficeMax joined the fray. So there you are. They all started together and all will end up at the bottom together. It's nice to have a store but it's better to have a lower price and UPS drop it off at your home or office.
The 1990s saw a time of fast growth and fierce competition in the office supply retail space because in general terms business was good, people started new enterprises and had a few bucks.
Today, people are not really starting their traditional dream businesses because of government controls, ACA negative costs and other intrusions. What people are starting is some kind of internet business. Like selling mops, brooms, inkjet and toner cartridges and other things. Very little cost equals profit. Staples hopes and prays that the internet will only belong to them and of course that's silly, just like the merger. You can now, as a consumer, buy direct from the Chinese factory, what in the world is Staples thinking.
By the time of the 1997 merger attempt Staples had 577 stores in the U.S. and Canada while Office Depot had 572. The pair were competing for $185B USD worth of annual gross business at the time and it was a battle that consumers enjoyed. Your mail box was full of catalogs, the Sunday paper would have a sales paper, reward programs for loyalty, discount coupons arrived from everywhere and you could buy just about anything you wanted, even with a credit card.
Since the failed merger both chains have grown rapidly. Today Office Depot owns roughly 1,110 stores in North America and an additional 400 stores overseas. With 1,510 Office Depot stores you can image the costs of opening the doors daily. Massive retail and internet distribution centers, packed full of slow moving inventory, low production rates, union pressures and more.
Staples is slightly larger, with operations in Europe, Australia, South America, and Asia, thanks to borrowed money buying Corporate Express, in addition in North America. Staples North American operations encompass 1,800 stores but they're almost empty of customers. Staples also owns 326 European stores (if anybody counts them) in the UK, Germany, Belgium, Portugal, and the Netherlands. Staples also has more than 30 Southeast Asian stores (27 in China; 6 in India) and a handful of South America stores (in Brazil and Argentina). All in all, Staples has close to 2,200 stores internationally but that number drops every day by design. According to market research groups the office supplies market for the U.S. alone is now worth roughly $200B USD annually so how do you cash in?
But sales and revenue competition is a bloodbath and it gets worse by the day due to the internet connections. The internet allows instant competition. Buy it now, sell it now, process the cash, drop ship it now and move on to the next order.
Both giants, Office Depot and Staples have turned to downsizing and boarding up stores to boost slow profits. Shut down the losers, get rid of thousands of employees, move the merchandise, pay off the lease early and move on. But there is one giant problem. They also left their inkjet, toner, paper and pen customers standing on the street corner staring at their closed forever signs. Wow, you can only guess what the teacher thought when the store was boarded up and she needed paper clips, she went to Wal-Mart or Target.
Staples and Office Depot can close hundreds of stores leaving hundreds of thousands of customers alone and looking for solutions. In time, those hundreds of thousands of customers will find a new local source and forget all about Staples just like Staple forgot all about them, left in the cold.
Staples nailed and shuttered 137 stores in 2014 and was on pace to close up roughly 90 stores in 2014 but the number will move a lot higher. They are reducing the cost and leaving customers.
It's expected to close an additional 17 stores in Q1 2015 and they would love to close a lot more but it takes time and a lot cash money wasted to close a store. Those closures helped Staples nearly double its net income (profit) to roughly $217M in Q3 2014 on sales of $5.96B USD. Profit is your paycheck so that's a good thing but it doesn't mean that the future profits are secure. The amounts of profit is terrible.
In just a moment, an organization, like Amazon, could buy up all the Radio Shack's thousands of stores and open up 5,000 small and profitable office supply discount outlets. Almost like back to the future the small neighborhood office supply store could return by servicing their customers with great prices, handshakes and smiles and creating good paying local jobs again.
In addition to Staples and Office Depot there's OfficeMax which was sucked up by Office Depot and other much smaller regional competitors that play on the field.
Some regional players like privately held W.B. Mason have been growing increasingly aggressive. W.B. Mason has a network of 28 "WhattaBargain!" stores in the Eastern U.S. and it maintains a nationwide network of warehouses and delivery trucks to fulfill large orders which is the most lucrative office supply market.
This private player has grown to sales of roughly $1.5B USD annually so you can guess that Staples will want to buy them, with heavy patronage from government buyers, and we all know that government loves to spend money. Roughly a third of its sales (as with Staples and Office Depot) come from large orders.
IV. Three Into One sounds like a bad cake,
Hope among Starboard Value Activist Investors and other pro-merger capitalist has been stoked by the Obama's FTC's recent approval of a 2013 bid of $1.17B by Office Depot (then the second largest office retailer) to acquire OfficeMax (then the third largest office supplier).
The merger deal was not without its headaches and the Staples Office Depot merger proves the point. To win approval for this "merger of almost equals" Office Depot had to sell off most of its holdings in Mexico and South America which makes no sense at all. Re-distribution of wealth of Mexico? This sell off didn't help American consumers.
Office Depot sold 248 stores in the region to Mexican office supply chain Grupo Gigante SAB de CV (MX:GIGANTE) for 8.78 billion pesos ($690 million) and most likely posted some nice bonuses for the boys. The 2013 OfficeMax purchase by Office Depot was approved after the parties committed to divestments which had everything to do with Mexico and not America.
There was a major regional store overlap of roughly 50 percent of their stores, more than 300 OfficeMax stores were closed creating massive layoffs and hardships. These moves have shrunk OfficeMax's network of stores which comprised roughly 900 stores in the U.S. and Mexico at the time of the purchase to around a third of its former size. The giant became a midget so Office Depot bought up the parts and pieces.
But the deal also showed signs of working. In Q3 2014 the merged Office Depot + OfficeMax business unit reported an operating income (operating profit) of $49M on a revenue of $4.1B USD.
That was up substantially from an operating loss of for the two business of $52M USD in Q3 2013 on a combined revenue of $4.2B USD.
Staples + OfficeMax + Office Depot = Total Market Failure
The reversal of the loss was good enough for a net income (profit) of $29M USD. Those militant stock shares had risen nearly 50 percent since the close of Q1 2014, prior to the announcement of the Staples bid. That's a affirmation of the grand scheme of Starboard, fool the market, fool the customers, the key investor who pushed the deal with OfficeMax.
Staples believes it will realize similar savings on a merger with the combined Office Depot + OfficeMax brand and this would be true in the short term by closing 500 to 700 retail stores, laying off and booting out 10,000 to 15,000 employees to the curb and claim total synergistic (get rid of duplicates) savings will equate to roughly 2.5 percent of the company's combined gross revenue annually. Once the merger deal is done, all the talk is over and massive reductions will start without delay.
Promote synergy (like a boss): Staples says the deal would result in $1B in annual synergistic savings.
Ronald L. "Ron" Sargent who has held the combined role of CEO and Chairman at Staples Inc SPLS since the founder Stemberg stepped down in 2002 is a letdown when the author first met him in person. The more he talks the less you listen and he manages, it seems, by force and fear a combination where employees seek revenge.
He likes the power of the office but he made the mistake of hiring herds of last week's teenagers with college degrees.
You would think a man running a larger global operation would be of a greater size but maybe his size represents his strategic thinking?
When the author looked at "Ron's" corporate personal office for the first time it explained a lot. Papers and folders piled high, disorganized and the boss dressed like he was golfing for the day vs. operating a profitable business.
This should be a transformational business acquisition but really it's just another big thick folder on Ron's desk, somewhere. Starboard Value is the boss today and Ron will walk quickly around the corporate office putting his best face forward, burning up hours on conference calls, calming the regional vice presidents, managers and others, that everything is just o.k.
This will not enable Staples to provide more value to customers, because the same old management will be in play, and more effectively fail in a rapidly evolving competitive environment. The world won't stop spinning because of Starboard Value and BB, WMT, TGT, COST, AMZN have their own plans and they never include Staples.
They may expect to recognize at least $1 billion of cost reduction synergies as they continue to aggressively reduce global expenses and optimize the remaining retail stores but not one person is talking about the customer or employees that they like to call associates.
These short term savings will dramatically accelerate our strategic reinvention (wanting to be Amazon which never makes money) which is focused on driving growth in our delivery businesses (ecommerce - internet web) and in categories beyond office supplies like coffee, napkins, brooms, mops, cheap furniture and other goodies for business buyers that don't really care about the costs?
The merger could be a crowning achievement for Staples CEO and chairman Ron Sargent but not really. Staples is a series of dozens of buy ups and shut downs.
A billion dollars in cash savings would be massive in today's tight business market nearly doubling Staples annual profit to a new higher level which is still too low.
Roland Smith, Office Depot's chairman and CEO also sounded optimistic about the deal, because he has no choice, stating:
This transaction delivers great value for our shareholders and creates a company ideally positioned to serve our customers and grow over the long term. I'm not sure what else Roland could say except that he operates a better company, has a brighter future than the one Ron will be in charge of very soon, maybe.
It is also an endorsement of our many accomplishments and the tremendous success we’ve had integrating Office Depot and OfficeMax over the past year. We look forward to bringing our experience and knowledge to the new organization because Starboard gave them no choice. As provisions of the deal "Ron" Staples agreed to divest up to $1.25B in stores and other assets of Office Depot which sounds like the Mexico deal?
What would a Staples-Office Depot merged business look like and why nobody cares about Starboard Value?
It would claim roughly $39B in annual revenue that it can never hold and will start shrinking from day one, and close to a quarter billion in quarterly net income, which is $250 million dollars every quarter, unless something changes.
In the U.S. and Canada, the combined entity would have close to 3,000 stores and would be the third largest online retailer which really is the same place they hold now. Overseas it would control as many as 800 stores, in a European recession and bleeds cash like a stuck pig, although a good portion of that a couple hundred stores or all of them, perhaps might end up on the chopping block sucking back cash to America to save the general office and Ron's job again.
According to Internet Retailer, prior to an divestitures or store closures the combined chain would have 4,244 stores globally and would do $14.5B USD in internet business which is big business but they cannot make money. Staples loves to talk about gross dollar sales and being number two on the internet but they refuse to talk about delivery services, old inventory, computer security problems, labor union pressures, layoffs and the downturn in the overall culture.
The pair both have cell mobile efforts, with roughly $1.45B USD of their combined sales last year coming from mobile devices (tablets smart-phones). That's good enough to place the Staples and Office Depot in 12th and 15th place in Internet Retailer's "Mobile 500" for 2014. You can bet nobody orders bulk paper with their phone.
Roughly two in five mobile sales come from the pairs' dedicated apps, while the cell smart-hone mobile-optimized site delivers the majority of sales on the go which is neat but no big deal.
Staples suffered a bit of a setback last December when it suffered a data breach and lost millions of customer records to hackers. However, Staples revealed that the breach to be less substantial to those that affected other retailers, including Target Corp. (TGT) and The Home Depot, Inc. (HD) which makes everything all right.
To handle the money transition Staples has contracted the Bank of America Corp.'s (BAC) investment vehicle Merrill Lynch and UK investment bank Barclays plc (LON:BARC) to give it a 6-year, $2.75B USD loan and a $3B USD ABL line of credit. Now that Staples has about 6 billion in borrowed money they can operate a few years, making their minimum monthly payments just like your credit card. Staples loves credit, no matter the terms.
VI. Warning Signs - Dead End - Curve Ahead
Not all competitors are opposed to the deal because in the long run the Staples Office Depot combination will fail.
A business-minded retailer in spot No. 519 in Internet Retailer's annual rankings hinted that it would not file to block the deal. The site's president, Seth Newman, opined:
The big keep getting bigger and that’s not necessarily a bad thing for smaller merchants. Told you so.
Many times the larger companies are slower to react to changes in the market and new opportunities while smaller firms can adapt quickly...
In one potentially troubling sign, it was observed that the approval of the Office Max purchase by Office Depot referred to Staples as a counterweight when it's really just a deadweight.
While the approval also cites the important and growing roles of W.B. Mason, Amazon, Wal-Mart, and other smaller players, it is unclear whether those challengers would be deemed sufficient to "remove the counterweight".
Former FTC litigator Amanda Wait suggested that the case would boil down to whether there were sufficient rivals in the bulk order space.
Professor Erik Gordon of the University of Michigan’s Ross School of Business comments:
Office Depot will have to convince the government of its claim that eliminating the competition with Staples poses no threat to prices because of competition from Wal-Mart and Internet players.
The deal will have to pass muster under The Clayton Antitrust Act of 1914 (15 U.S.C. § 18). That law gives the FTC Congressional authority to block mergers and acquisitions that would lead to a monopoly, if the deal is found to potentially lessen competition. The law was notably applied in 2011 to successfully block AT&T, Inc.'s (T) $39B USD bid to buy T-Mobile U.S., Inc. (TMUS), a rival celluar carrier, after it was determined that the deal would likely have a harmful effect on competition.
AT&T death star
AT&T saw its 2011 bid for T-Mobile blocked by regulators.
A former FTC litigator, Amanda Wait, hinted to The Wall Street Journal that the acquisition might be blocked by the FTC. Now with private law firm Hunton & Williams LLP, she commented:
This investigation isn’t going to be about where you and I can buy a stapler. It’s about where a company can buy 10,000 staplers.
"Easy?" Don't bet on it.
The Rosen Law Firm of New York announced in a press release that it was "investigating"
The Rosen Law Firm announces that it is investigating the Board of Directors of Office Depot, Inc. for possible breaches of fiduciary duty and other violations of law by failing to adequately shop Office Depot to maximize shareholder value before agreeing to be acquired by Staples, Inc.
Investors are nervous about the deal. After bouncing upwards, Staples shares were down more than 10 percent in after-hours trading. A key cause of concern is that Staples left itself relatively free to back out of the deal if the FTC demands bigger concessions than the $1.25B maximum it's willing to give up. Staples also did not set a date for the merger so all this was just for fun.