Judge: Staples failed to show how Amazon would add to competition

May 17, 2016 05:06 PM

(Bloomberg)—The federal judge who killed Staples Inc.’s planned $6.3 billion merger with Office Depot Inc. said the companies failed to show that competition from Inc. in the office-supply market was enough to reject a U.S. request to block the deal.

"The evidence presented during the hearing fell short of establishing that Amazon Business is likely to restore lost competition" in the market for corporate contracts, U.S. District Judge Emmet Sullivan said in a 75-page opinion made public Tuesday.

Sullivan last week blocked the merger of the No. 1 and No. 2 office-supply retailers, keeping his reasoning secret until the companies redacted confidential business information. The judge said in his opinion that the Federal Trade Commission had met its burden of showing the deal would have led to undue concentration. Staples is No. 5 in the Internet Retailer 2016 Top 500 Guide, Office Depot is No. 9 and Amazon is No. 1.

The FTC sued to stop Staples, the biggest U.S. office supply business, from acquiring its leading competitor in December, arguing the combination would have led to higher prices for corporate customers in violation of antitrust laws.

Sullivan sided with the agency, saying large companies benefit from head-to-head competition among vendors and that customers’ bargaining power "is enhanced by their ability to pit defendants against each other."

While the companies countered that Amazon’s year-old Amazon Business unit could fill the void left by Office Depot, that argument failed to dissuade the judge from halting the tie-up after nearly a month-long hearing.

His three-page order last week, which prevented the companies from merging pending a full-blown trial in the FTC’s administrative court, prompted Office Depot and Staples to announce they were calling off the deal. The companies previously had said the merger wouldn’t survive a drawn-out administrative procedure.

The ruling capped Sullivan’s role in an often contentious proceeding during which he criticized the FTC’s handling of the case and frequently interrupted the questioning of witnesses for his own queries.

Both retailers are slated to make presentations to investors this week about their strategies going forward without the merger. Office Depot said it has hired Bain & Co. Management Consulting Co. to carry out a strategic review of its business.

The case is Federal Trade Commission v. Staples Inc., 15-cv-2115, U.S. District Court, District of Columbia (Washington).




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