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FTC Approval of OfficeMax Deal Appears Certain

NEW YORK ( The Deal) -- The Federal Trade Commission appears to have accepted Office Depot's (ODP - Get Report) argument that the company faces stiff competition in the office supply market from both general and online retailers, eliminating any regulatory roadblock to the company's pending $1.2 billion acquisition of rival OfficeMax (OMX).

The transaction would leave only Office Depot and Staples (SPLS - Get Report) as big box office supply retailers, but they face competition not only from traditional rivals like stationers and direct distributors but now from superstores such as Wal-Mart Stores (WMT - Get Report) and Target (TGT - Get Report) as well as online retailing giants such as Amazon (AMZN).

In recent conversations with investors, executives for the parties as well as Staples CEO Ronald Sargent have said the entry of the general retailers and Amazon altered the market dramatically since the FTC thwarted Staple's 1997 bid to acquire Office Depot, leaving little reason for the deal to be blocked or saddled with any significant divestiture orders.

Presumably Sargent has also delivered that message to FTC officials in the course of their investigation of the merger.

Sources following the deal said they believe the parties certified compliance with the FTC's second request for information on the deal at the end of September. Given that the companies entered a timing agreement not to consummate the merger until at least 45 days after certifying compliance with the second request, the FTC now appears set to approve the deal no later than mid-November.

Despite being blocked in its bid to acquire Office Depot 16 years ago, Staples is said to support the merger of its two closest big box rivals because it and Office Depot will be better positioned to compete against Wal-Mart, Target and Amazon.

Further indication that FTC approval is near came last month when OfficeMax CEO Ravi Saligram took himself out of the running to head the merged company. Saligram's announcement was seen as a sign that the prospective CEO will be announced soon, a step the companies would be unlikely to take if they were still uncertain of the FTC's direction.

Office Max shares have been steadily rising since late August, when they traded around the $10.50 range as prospects for FTC approval have become clearer. As of midday trading Thursday, they hovered around $14.50, eliminating the spread on Office Depot's offer to provide 2.69 of its shares for each of Office Max's.

-- Written by Bill McConnell in Washington

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OMX $15.26 -0.26%
ODP $5.88 0.00%
SPLS $10.20 0.00%
TGT $79.50 0.00%
WMT $66.87 0.00%


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