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From Antitrust Law Daily, May 11, 2016

FTC wins preliminary injunction blocking Staples, Office Depot combination

By Jeffrey May, J.D.

There is a reasonable probability that the proposed merger of Staples, Inc. and Office Depot, Inc. will substantially impair competition in the sale and distribution of consumable office supplies to large business-to-business customers, the federal district court in Washington, D.C. has decided. The FTC’s motion for a preliminary injunction blocking the deal until the completion of an FTC administrative challenge to the proposed transaction was granted. In light of the court's ruling, Staples and Office Depot say that they will abandon the deal (FTC v. Staples, Inc., May 10, 2016, Sullivan, E.).

The federal district court promised to issue its order on the motion for preliminary injunction by May 10. Staples had requested a determination by that date based on its financing plan for the transaction. While the court met its own deadline, a detailed opinion will not be released until after the parties have had an opportunity to weigh in with proposed redactions. The court noted that the opinion contains competitively sensitive information.

An evidentiary hearing in the FTC proceeding had been scheduled to begin on May 10. The start of the administrative trial was pushed back to May 31, however, in light of the impending federal district court decision.

The FTC issued its complaint in December 2015. The agency alleged that Staple’s proposed $6.3 billion acquisition of Office Depot would eliminate head-to-head competition between the two largest vendors of consumable office supplies to large business-to-business customers in the United States.

Statements of Staples and Office Depot. Staples and Office Depot had represented to the FTC and the court that they would abandon the transaction if the court sided with the FTC. Following the ruling, Staples confirmed that position.

“We are extremely disappointed that the FTC’s request for preliminary injunction was granted despite the fact that it failed to define the relevant market correctly, and fell woefully short of proving its case,” said Ron Sargent, Staples’ chairman and chief executive officer, in a statement. Formal termination of the deal was expected May 16.

Office Depot Chairman and Chief Executive Officer Roland Smith concurred, saying that his company was “disappointed” in the outcome. He added that, in his view, the merger would have benefitted customers in the long term. Office Depot will receive a $250 million break-up fee.

FTC Bureau of Competition Director’s reaction. FTC Bureau of Competition Director Debbie Feinstein called the decision “great news for business customers in the office supply market.” In her view, the deal threatened to “eliminate head-to-head competition between Staples and Office Depot and likely lead to higher prices and lower quality service for large businesses that buy office supplies.”

The FTC will now likely dismiss its administrative challenge. The move is anticipated to follow the parties’ official abandonment of the merger and withdrawal of their Hart-Scott-Rodino filings.

This is Case No. 1:15-cv-02115-EGS.

Attorneys: Tara L. Reinhart for FTC. Andrew L. Goldman (Goldman Ismail Tomaselli Brennan & Baum LLP) for Staples, Inc. Andrea B. Levine (Simpson, Thacher & Bartlett LLP) for Office Depot, Inc.

Companies: Staples, Inc.; Office Depot, Inc.

MainStory: TopStory AcquisitionsMergers Antitrust FederalTradeCommissionNews

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