The Federal Trade Commission is strongly criticizing Staples' (SPLS) proposed remedy for antitrust problems created by the company's plan to acquire big-box office supply retail competitor Office Depot (ODP) .
"The proposed fix cannot salvage this merger," the FTC said in a brief made public late Friday. A version containing confidential business information was filed Feb. 16, the day Staples and Office Depot formally announced an agreement to sell more than $550 million in large corporate contract business and related assets to Essendant (ESND) . The sale to Essendant had been proposed to the FTC before the agency filed its legal challenge to stop the Office Depot acquisition on Dec. 7. The sale is contingent upon Staples receiving antitrust clearance from the FTC or the court for the Office Depot deal.
The spinoff to Essendant, for which Staples would be paid $22.5 million, would comprise a book of business containing more than 25% of its revenue from Fortune 100 companies and approximately half of its revenue from Fortune 500 companies.
The commercial business and assets that would be divested are primarily accounts in which Staples and Office Depot act as wholesalers to minority- and woman-owned office supply resellers. Staples said the sale "will significantly increase Essendant's presence with large corporate customers, improve Essendant's capabilities, and further enable independent dealers in combination with Essendant to more effectively compete for national account business."
Observed Ron Sargent, Staples chairman and CEO: "Our agreement with Essendant strengthens a national competitor, further enables independent office products dealers, and helps minority and woman-owned businesses compete for national commercial customers."
When the FTC challenged the merger two months ago, the agency said the Office Depot acquisition was anticompetitive because the two companies were their closest competitors in the sale of consumable office supplies to large business customers. In fact, according the numbers from the commission's Feb. 16 brief, they would hold a combined 79% of that market and would be roughly 15 times the size of their next largest competitor, regional office supplies vendor W.B. Mason. The FTC noted that W.B. Mason's primary product is paper and the company does not carry the full array of supplies that businesses need.
The FTC took a dim view of the proposed sale to Essendant as a fix to those problems. The FTC noted that the business to be divested is a niche service that helps customers satisfy state or federal minority contracting requirements or meet customers' diversity goals.