* Deal aimed at competing better with online and big box rivals
* FTC approval likely, experts say
* Staples’ shares fall over 10 pct, Office Depot’s rise 1.5 pct (Adds analyst comment, details, updates shares)
By Yashaswini Swamynathan and Devika Krishna Kumar
Feb 4 (Reuters) - Staples Inc, the No. 1 U.S. office supplies retailer, agreed to buy No. 2 Office Depot Inc in a $6.3 billion deal designed to help it better compete against Wal-Mart Stores Inc and online rivals such as Amazon.com Inc.
The U.S. government’s antitrust watchdog, the Federal Trade Commission, is likely to approve the deal, experts said, agreeing with the companies that the rise of online retailers and mega stores had changed the competitive landscape since 1997 when the agency stopped the companies from merging.
The FTC noted the proliferation of competitors in the market for basic office supplies when it signed off on Office Depot’s purchase of No. 3 OfficeMax in 2013.
“The same factors that the FTC cited in the Office Depot/OfficeMax deal are present here,” said Seth Bloom, a veteran of the Justice Department’s antitrust division now in private practice. “I think there’s a fair chance for this deal to be approved.”
The FTC’s review will likely focus on whether prices have risen since Office Depot bought OfficeMax, said Michael Keeley, a partner at law firm Axinn, Veltrop & Harkrider.
“Unless the FTC finds that prices have gone up as a result of that acquisition, the Staples transaction should have a good chance at clearance as well,” Keeley said.
Staples’ shares fell 12 percent, suggesting investors were concerned about the deal to combine the biggest remaining U.S. retailers of basic office supplies such as paper and ink toner. Office Depot’s shares rose 3.8 percent.
Edward Jones analyst Brian Yarbrough said Staples was paying “a more than fair price” for Office Depot and was taking on a large debt to buy a competitor in a weak market.
Staples said it had secured a $3 billion credit facility and a $2.75 billion six-year term loan financing to fund the deal. It will also suspend its share buyback program.
Staples said it could call off the deal if authorities ordered divestitures that delivered more than $1.25 billion of Office Depot’s 2014 U.S. revenue.
The FTC did not require Office Depot to ditch stores when it bought OfficeMax. The companies had cited increased competition as a key reason for their merger.
The sheer clout of Amazon and Wal-Mart has led to consolidation across the retail industry - from books and electronics to dollar chains.
But Morningstar analyst Liang Feng said consolidation does not necessarily result in market share growth, citing the example of Best Buy Co Inc.
The retailer made a slew of acquisitions in 2011 and 2012 but has struggled in the face of competition from Amazon and Wal-Mart.
“(The Staples-Office Depot deal) will lead to cost savings but one of the biggest problems for this merged entity is going to be growing market share,” Feng said.
Activist investor Starboard Value LP called for the companies to merge last month to save costs.
Starboard last reported a 5.1 percent stake in Staples and a nearly 10 percent holding in Office Depot.
Staples will pay $7.25 per share in cash and 0.2188 of its shares for each Office Depot share, a premium of 44 percent to Office Depot’s close on Monday before the Wall Street Journal reported that the companies were in talks.
At $16.89, the low of Staples’ share price on Wednesday morning, the deal values each Office Depot share at $10.94. Office Depot’s stock was trading at $9.38.
Barclays is financial adviser to Staples. Legal advisers are Wilmer Cutler Pickering Hale and Dorr LLP and Weil, Gotshal & Manges. Peter J. Solomon Co is financial adviser to Office Depot, whose legal adviser is Simpson Thacher & Bartlett. (Additional reporting by Diane Bartz and Nandita Bose; Editing by Savio D’Souza, Ted Kerr and Saumyadeb Chakrabarty)