Office Depot and Staples Merger Ends, Sending Stocks Plunging

Office Depot and Staples shares plummeted Wednesday. The drop occurred after the merger between the two companies collapsed.

This failure occurred after Federal Judge Emmet G. Sullivan ruled for the Federal Trade Commission. The Federal Trade Commission voiced concerns that a merger would lead to higher prices for any large corporation buying bulk office supplies. Concerns for both companies futures showed when stocks closed.

Staples shares ended at $8.46 down 18.3%.

Office Depot closed at $3.63 down a staggering 40.4%.

This deal is the second deal within 19 years the two companies have put an end to a merger. The antitrust concerns raised by the Federal Government that led to the end of the mergers.

What the Merger Entailed

A merger was offered between the two mega-companies last February. If the merger had gone through as planned, it would have proven to be one of the largest mergers in the office-supply market.

Both companies are multinational, e-commerce capable, and have international offices.

The merger came at a time when online businesses, such as Amazon, were steadily causing hits to the office supply companies. The companies have taken hits in other areas as well, including the printing activities. Young consumers are printing less than previous generations.

Staples announced plans to close 225 of its North American stores last year because of the changes in production. The companies would have benefited from cost savings among other benefits from the merger.

If the merger had moved forward as planned, Staples would have acquired Office Depot for $6.3 million.  The thought was that Staples and Office Depot hoped the merger would generate $1 billion in savings annually.

Amazon

Both companies are adamant that increases in office supplies in nontraditional office supply stores make the merger necessary. Amazon was the key focus. Amazon is reported to have sold more than $1 billion in their office supplies division and other products last year.

Both accuse the Federal Trade Commission of ignoring this significant threat. Many think that Both Office Depot and Staples forced Amazon to downplay their office supply sales.

A Ruling for Consumers

The judge ruled to place a temporary injunction on the matter. The order blocks the deal. The merger is now scheduled to end May 16, 2015.

Judge Sullivan's ruling decided the Federal Trade Commission had succeeded in meeting their burden of proving there to be a reasonable probability that competitions in sale and distribution would be substantially impaired if the merger were passed through. He also stated sufficient proof was show the ruling is best for the public.

Director of Federal Trade Commission's competition bureau, Debbie Feinstein felt Jude Sullivan's decision was great news for any companies and consumers in the market for office supplies. She felt the deal would lead to higher pricing and lower service quality due to lack of competition.

The complaint of the Federal Trade Commission's did not focus on the individual purchasers. Office Depot and Staples are more often than not the top two contenders during bidding for large corporations or companies.

CEO Roland Smith, Office Depot, was surprised with the outcome. In his belief, the merger would have helped customers on a long term basis. He felt as if the Federal Trade Commission fell short of proving their case.

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What Will They Do Now?

Both Staples and Office Depot respect the judge's order. Neither plans on filing an appeal at this time.

Due to the stop of the merger, Staples will have to pay Office Depot a $250 million breakup fee. It will also sell more than $550 million corporate contract business. Related assets also include Essendon.

Staples plans to focus on the future now that the deal is ending. The company plans to change its focus in North America. Mid-market consumers will now be the primary target of the number 1 office supply company.

Staples CEO, Sargent, explained they will be expanding their inventory beyond office supplies as well. Strategic alternatives explored for its European sectors.

Office Depot has not come forward with a statement of the plan at this moment. Expectations are that this smaller competitive company will take longer to bounce back from the closing of the merger. Shareholder and former CEO of Office Depot, Steve Odland believes the ruling could mean an end to Office Depot

All the company's attorneys of each company will receive a sealed memorandum laying out the reasons for his decision in greater detail. Since it is sensitive information, the documents are sealed.

Once the judge has been given redaction from both sides, he plans to release a version of the memorandum to the public.

The analyst is calling each company's ability to compete effectively in the market as individual companies to light. Daniel Binder, Jefferies analyst, stated to investors that neither company is expected to have positive profits without the benefit of synergies. He expects the competition from those mentioned online and other supply stores to continue to make the individual companies vulnerable.

The Analyst is calling every business's ability to compete effectively in the market as different companies to light.