A federal judge on Tuesday blocked a US$6.3 billion proposed merger of Staples and Office Depot, dashing another huge deal and handing US President Barack Obama’s administration one more antitrust victory.
The US Federal Trade Commission (FTC) had sued the two companies late last year, arguing that combining them would effectively create just one major retailer focused on pens, paper clips and Post-it notes.
In a three-page order, Judge Emmet Sullivan of the US District Court for the District of Columbia agreed, writing that the pairing of the two would “substantially impair” competition in the business of selling office supplies.
Both firms said in statements after the ruling that they planned to end their merger plans.
Shares in Staples fell 10 percent in after-hours trading, to US$9.31, while Office Depot tumbled 26 percent, to US$4.49.
It was the latest victory for government regulators, who have taken aim at big deals they say create juggernauts that would unfairly dominate their industries.
In a record-setting boom in mergers last year, nearly US$5 trillion in deals were struck. However, many of them represented consolidation in industries that, government regulators have said, were already thin on competition.
US Attorney General Loretta Lynch said in a speech last month that the Obama administration was worried that continued consolidation would harm consumers by leading to higher prices and lower quality.
“Victories across a wide range of industries make clear that if our analysis leads us to conclude that a merger will restrict competition, we will not hesitate to intervene,” she said.
Earlier this month, the US Department of Justice successfully forced the oil service companies Halliburton and Baker Hughes to call off their US$35 billion merger.
The FTC also blocked an effort by Sysco and US Foods to merge, a deal that would have united two of the nation’s biggest food service providers.
Other proposed transactions that fell apart under government opposition include AT&T’s US$39 billion bid for T-Mobile USA and Comcast’s US$45 billion offer for Time Warner Cable.
In the case of Staples and Office Depot, the two would have had about US$37 billion in revenue and roughly 3,500 stores. In 1997, the FTC blocked a previous attempt by the two companies to combine.
The companies had fought back in court, arguing that joining forces was necessary with much-larger competitors like Wal-Mart and Amazon. Other antitrust regulators, including in Europe, signed off on the deal after the two companies agreed to sell off certain parts of their businesses.
In statements on Tuesday, both Staples and Office Depot said that they planned to move on from the failed merger. Under the terms of the deal, Staples is to pay Office Depot a US$250 million breakup fee.
“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,” Staples chairman and CEO Ronald Sargent said in a statement.
“While we are respectful of the court’s decision to grant the FTC’s request for a preliminary injunction to prevent our merger with Staples, we are disappointed by this outcome and strongly believe that a merger would have benefited all of our customers in the long term,” Office Depot chairman and CEO Roland Smith said in a separate news release.
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