ICYMI: Why We Were Surprised by the Staples-Office Depot Merger Decision

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A possible Staples and Office Depot merger is off the table. Last week, a federal judge blocked the $6.3 billion deal from going through — a decision Staples reportedly will not appeal. The Federal Trade Commission argued the merger would hinder competition in the market.

The news came as a surprise to Pierre Mitchell, chief research officer at Spend Matters. In his analysis on the news last week, titled “The Staples-Office Depot Merger Fail — A Post-Mortem Analysis,” Mitchell said he thought the “high-powered defense team” of Staples would have prevailed in this situation. They have made some strong arguments, as he pointed out on his post. Here’s a snippet:  

The Staples attorneys basically argued that the FTC was seeking to “protect the largest most powerful corporations in America from supposedly higher prices for paper clips, Post-it notes, and rubber bands.” Those firms have long-term contracts, alternate supply sources and are just fine, thank you, even though Staples and Office Depot portrayed themselves (fairly accurately) as fighting for survival. They compared themselves to “a penguin on a melting iceberg” and seemed to argue that the FTC was pronouncing a death sentence similar to an FTC ruling against Blockbuster Video and Hollywood Video (RIP). Finally, they said that Staples’ offer to give up its “diversity business” was a meaningful carveout to ameliorate the FTC. It wasn’t.”

While Staples said the narrowly defined B2B office segment only represented 6% of its revenues, when combined with Office Depot, it was a large enough chunk for the FTC to strike down the deal, as Pierre pointed out.

Looking Ahead

What does the FTC decision mean for procurement? As Pierre wrote, “CPOs can breathe a momentary sigh of relief, but they should also think about the value they could have created if the merger did actually happen. Would you take another hard look at the category? Would you carve out some more items and go direct? Maybe look at group purchasing organizations? Would you take a harder look at Amazon Business? Perhaps you might benchmark your pricing against Amazon and see how market conditions have changed? And shouldn’t you be doing all these things anyway?”

As for the future of Staples and Office Depot, both chains need to reduce their physical asset footprints to succeed, Pierre wrote. He offers some thoughts on directions the two companies can go from here to survive independently — things like Office Depot using its $250 million breakup fee from Staples to acquire a best-in-class technology platform.

You can read Pierre’s additional ideas and full analysis on the news here.

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