Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: EC approves Staples’ acquisition of Office Depot, with conditions, (Feb 10, 2016)

By Linda O’Brien, J.D., LL.M.

Following an in-depth review, the European Commission (EC) has approved under the European Union (EU) merger regulation the proposed acquisition of office supplies distributor Office Depot by Staples, the EC announced today. The approval is conditional on Office Depot's divestment of its contract distribution business in Europe and its entire business in Sweden.

In February 2015, Staples announced its intent to acquire Office Depot for $6.3 billion, claiming that the deal would generate a minimum of $1 billion of annualized cost synergies by the third full fiscal year after the deal closes.

Staples and Office Depot, both of the United States, supply office products such as stationery, paper, and printer supplies in several European countries. Office products are marketed through a number of sales channels such as wholesale, contract sales and online sales.

In September 2015, the Commission opened an in-depth investigation into Staples Inc.’s proposed acquisition, citing concerns that the takeover could lead to increased prices and less choice for consumers in the European Economic Area (EEA). The investigation focused on the effects of the transaction in the international contract sales channel, as well as in the national contract sales channel in the Netherlands and Sweden. Customers in the contract sales channel typically purchase their office supplies by entering into a framework contract with a contract stationer following a tender.

International contract sales. The investigation showed that only Staples, Office Depot, and Lyreco were capable of entering into international supply contracts for large business customers in Europe, since they were present in several countries and could fulfil international orders. Moreover, the competition from specialist suppliers was limited as they offer a smaller product range and typically could provide the same services as those offered by contract stationers. The Commission also found that barriers to enter the contract market were high due to the specific requirements of large contract customers who purchase under tenders. The investigation also showed that online commerce companies, such as Amazon, could not currently be considered as competitors in the contract business market in Europe, since they only sell office products through the online sales channel. Therefore, the merger, as notified, would have critically reduced competition in the already concentrated market for international contracts for office supplies.

National contract sales and wholesale. Additionally, the EC found that the transaction would have reduced competition in the markets for national contracts with large business customers in the Netherlands and Sweden, as well as in the wholesale supply of office products in Sweden. These were found to be particularly concentrated markets where few alternative suppliers are active.

Commitments. To address the Commission's concerns, the companies offered to divest: (1) the whole of Office Depot's contract distribution business in the EEA and Switzerland to address both the competition concerns in international contract sales, as well as in national contract sales in Sweden and the Netherlands; and (2) Office Depot's entire business operations in Sweden to also address the competition concerns in the Swedish wholesale market for the supply of office products.

The EC concluded that the commitments remove the entire overlap between the merging companies in all markets where concerns were raised, thus ensuring that an important alternative will remain available on these highly concentrated markets. Staples can only implement the acquisition of Office Depot once the Commission has assessed and approved the divestiture to a suitable purchaser.

"The substantial remedies package offered will ensure that effective competition is maintained, in particular on the EU's international office supplies market,” said Margrethe Vestager, Commissioner in charge of competition policy. “This will allow European companies to continue to benefit from the Single Market by procuring their office supplies internationally and to reduce costs."

FTC challenge. While the proposed merger has passed muster with the EC, it remains the subject of ongoing litigation with the FTC as well as the Canada Competition Bureau. The FTC filed an administrative complaint in December 2015, charging that the deal would significantly reduce competition across the United States in the market for “consumable” office supplies sold to large business customers for their own use. Similarly, the Canada Competition Bureau filed an application with the Competition Tribunal, claiming that that the transaction would likely substantially lessen competition in the office products delivery business in Canada. If the deal were to close, Staples would account for more than 80 percent of sales of various office products in Canada, according to the Competition Bureau.

Companies: Staples, Inc.; Office Depot, Inc.

News: AcquisitionsMergers Antitrust