| WASHINGTON/NEW YORK
WASHINGTON/NEW YORK Feb 19 Antitrust experts
said on Tuesday there were no guarantees that a deal to merge
Office Depot Inc, the No. 2 U.S. office supply retailer,
with smaller rival OfficeMax Inc would win government
The two companies are in advanced talks to merge and a deal
could come as early as this week, a person familiar with the
matter said on Monday.
Among antitrust experts polled by Reuters, one said the deal
was likely to be approved, two forecast a potential challenge by
regulators and four said it was too close to call for now.
The companies, which combined would still trail industry
leader Staples Inc, are under pressure to boost profits
and shareholder value. A merger would help them cut costs,
consolidate stores and boost their clout with suppliers.
A deal would likely be reviewed by the Federal Trade
Commission, which specializes in retail mergers, not the U.S.
Department of Justice.
The possible combination raises the ghost of a famous
antitrust case - the proposed deal to merge Staples with Office
Depot. The FTC challenged the deal in court in 1997 and a judge
ruled that it would lead to higher prices. It was scrapped.
The FTC's question now would be whether the landscape has
shifted so much, in particular because of the rise of Internet
sales, that its concerns from 1997 no longer apply.
Staples has 39.9 percent of the U.S. office supply market,
Office Depot 19.2 percent and OfficeMax holds 15.7 percent,
according to Euromonitor International.
Arguably, competition from Amazon.com and from
discount stores such as Target Corp and Wal-Mart Stores
Inc mean stiff competition for the office supply
One of the experts polled by Reuters, James Calder, co-chair
of the antitrust practice of Katten Muchin Rosenman LLP, said
changes in the marketplace meant it would be harder for the FTC
to litigate against the current deal than in the 1997 case.
"Staff is going to want to look at the data, in part, the
same way it did in 1997 to test if super stores are different
than other sellers and to test what effect on pricing there is
if any when the stores are close to each other," he said.
Robert Doyle, of Doyle, Barlow and Mazard PLLC, was at the
FTC when the agency challenged the earlier merger and said the
market has changed totally since then.
"In 1997, the Internet was irrelevant. Internet competition
is rampant. Big Box retailers have grown and expanded. They now
provide a lot of additional competition," he said when polled by
Still, the FTC must assure itself that Amazon and other
rivals compete effectively with the office super stores in
providing everything from pens and notebooks to furniture and
break room supplies to government, businesses and individuals.
OfficeMax noted in a government filing in early 2012 that it
considered its competition to be Staples and Office Depot, as
well as a range of online and big box stores.
But the crowding-in of direct competitors were its real
"Other large office supply super stores have increased their
presence in close proximity to our stores in recent years and
are expected to continue to do so," that filing said.
Peter Carstensen, who teaches antitrust at the University of
Wisconsin Law School, is skeptical the world has changed so much
that the FTC would approve a merger that takes a market of three
major competitors down to two.
"The (1997) Staples case says that this is a unique market.
My intuition is that this still remains," said Carstensen, who
was also among the experts polled.
OPTIMISM ON WALL STREET
R.J. Hottovy, an equity analyst at Morningstar, said Amazon
initially sold to individuals, but has increasingly gained a
foothold among businesses because of its often lower prices.
"This (merger) should get through the FTC this time around.
A merger is one of the few ways the companies can hang on and
compete in this rapidly evolving retail category," Hottovy said.
Nearly half a dozen Wall Street analysts also played down
antitrust concerns on Tuesday, saying that the office supplies
landscape has changed markedly in 16 years.
A merger today "would be much more likely to pass FTC
scrutiny due to the growth of competition from online players
and the mass channel," Barclays analyst Alan Rifkin said.
Investors bid up prices of all three companies on Tuesday.
OfficeMax shares jumped almost 21 percent, Office Depot advanced
9.4 percent and Staples closed up 13.1 percent.
Janney Capital Markets analyst David Strasser said the
regulatory risk was not as high as it was in the 1990s, but
added that local, state and federal governments might worry
about their supply costs going up at a time of tight budgets.
"We openly wonder if that will impact any decision" by
anti-trust authorities, Strasser said.
The companies did not respond to requests for comment.