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Feds Want More Info on OfficeMax-Office Depot Merger

NEW YORK ( TheDeal) -- The Federal Trade Commission on Monday stepped up its investigation of the planned merger of big-box office supply retailers Office Depot Inc. and OfficeMax Inc. by issuing a second request for information on the deal.

Many expected the FTC to extend its review beyond antitrust regulators' initial 30-day waiting period. The companies said they "remain optimistic about the regulatory process and will continue to work cooperatively with the FTC as it conducts its review of the proposed combination."

Office Depot (ODP - Get Report) was gaining 1.7% to $3.97 in mid-day trading while OfficeMax (OMX) was adding 1.3% to $11.72.

The companies announced their plans to merge on Feb. 20. Terms of the deal call for Boca Raton, Fla.-based Office Depot to issue 2.69 shares for each share of Naperville, Ill.-based OfficeMax. The merger is valued at $1.2 billion.

The antitrust review is expected to draw a lot of attention because the FTC thwarted a previous attempt to consolidate the industry in Staples Inc.'s 1997 bid to acquire Office Depot.

Either party may terminate the deal if it has not cleared all required conditions by Dec. 31, although that deadline will be extended to April 30, 2014, if the only outstanding issue is antitrust clearance.

Under the merger agreement, Office Depot and OfficeMax have agreed to divest or hold separate assets, or commit to any other action necessary to avoid an FTC challenge to the transaction under the antitrust laws unless the action "would reasonably be expected to have a material adverse effect after the closing on the combined businesses."

In discussing the deal with analysts when it was announced, Office Depot CEO Neil Austrian and OfficeMax chief executive Ravi Saligram insisted that they justify their deal on antitrust grounds because of the changes the industry has undergone since the would-be Staples deal, which like this one would have combined two of the top three office supply retailers.

They said the rise of Internet retailing and the incursion of mass merchants such as Target Corp., Wal-Mart Stores Inc., Best Buy Co. and Costco Wholesale Corp. into the office supply market ensures that sufficient competition will remain after their merger. They would not address the likelihood that divestitures in cities where the two chains are the only two big-box office retailers would be required.

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