NEW YORK (TheStreet) -- Shares of Office Depot  (ODP - Get Report) and Staples (SPLS) are plummeting this afternoon after the companies announced last night that the federal government blocked their proposed $6 billion merger on concerns about competition.

"This was a merger that had to happen," TheStreet's Jim Cramer said on CNBC's "Squawk on the Street" this morning.

Cramer mentioned that the outcome seems strange, since he believes that there needs to be a company big enough to rival e-commerce giant Amazon.com (AMZN). But the government is the most active it's been in blocking deals in roughly 40 years. 

"The idea that you merge the two and you keep the [stores] that were best made a lot of sense and made it so that there was a competitor against [Amazon and Costco (COST)]," Cramer noted in the above video. "The judge was being very myopic in not taking into account that world is changing much faster. This is a travesty."

He pointed out this morning that Amazon.com has made retailers such as Office Depot and Staples nearly obsolete, as millennials prefer to do most of their shopping online. 

"This Amazon quarter was a tipping point quarter where you just realize this is a whole generation of people who will never go to Office Depot," Cramer said.

He mentioned that he's unsure how Office Depot will stay in business without the deal.

The stock is down nearly 40% to $3.73 this afternoon.

"Stocks don't trade at $3 because they're about to go to $5," Cramer said. "You know where they're about to go: $3, $2, $1, ignition. Failure to launch."

Separately, TheStreet Ratings team rates the stock as a "hold" with a ratings score of C-.

Office Depot's strengths such as its increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity are countered by weaknesses including a generally disappointing performance in the stock itself, poor profit margins and weak operating cash flow.

You can view the full analysis from the report here: ODP

TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this article's author.