Federal regulators are leaning against Staples' $6.3 billion bid to buy Office Depot and are poised to block the proposed merger. Staples had agreed to acquire Office Depot in February, but the deal immediately encountered regulatory scrutiny, with regulators expressing concern about the deal which would end up with a single office supply giant to serve big corporate and government clients, two sources revealed.
The New York Daily Post, which first published the report, while citing anonymous sources said that the four-member Federal Trade Commission panel in charge of reviewing the deal are split, with two in favor and two opposed. The two members in opposition of the deal are particularly worried about the pricing power the combined company would have with no competition.
The two office supply giants announced last month that they had won an extension on the review process through Dec. 8, leaving Staples to find a way to sway one of the two commissioners over to its side until then.
Staples proposed solution is to transfer about $600 million in back-end contracts to office supply wholesaler Essendant, which in theory would provide the company more pricing power when buying products, which it resells at a lower price to regional office suppliers.
This however, wouldn't turn Essendant into a nationwide supplier to rival a combined Staples-Office Depot, a fact that large Staples customers have taken note of.
The timing for the block is crucial for both the FTC and Staples-Office Depot. If it acts now before the European regulators rule on the merger, it can get a ruling before an in-house administrative law judge instead of going to federal court.
A source reported that it would be in the FTC's best interest to act sooner rather than later since the commissioners have a higher chance of winning before an administrative law judge than in federal court.
The FTC, Staples and Office Depot declined to comment.
