Office Depot, Staples to Sell 63 Stores to Resolve Antitrust Issues
Moving quickly to salvage their $4-billion merger, Staples Inc. and Office Depot Inc. said Wednesday that they have agreed to sell 63 of their stores--a third of them in Southern California--to rival office supplies chain OfficeMax Inc. for $109 million.
The sale is designed to head off an antitrust challenge to the merger announced Monday by the Federal Trade Commission. The agency said it would seek to block the deal on grounds that it would raise office-supplies prices for consumers and small businesses in about 40 markets where the two companies now compete.
Staples Chairman Thomas Stemberg and his counterpart at Office Depot, David Fuente, also sounded a conciliatory note toward U.S. regulators, saying in a statement that they “and the FTC share a concern for bringing the lowest possible prices” to consumers.
The agency responded cautiously to the tentative pact and declined to say whether it means the merger can now proceed. “If they present something that we believe is serious, we will talk to them about it,” said a spokeswoman for William Baer, head of the agency’s Bureau of Competition in Washington.
Staples and Office Depot said the 63 stores are similar to those that the companies--during earlier negotiations with the FTC--had proposed shedding to offset the antitrust complaints.
However, the companies failed to strike a deal with OfficeMax before the FTC voted Monday to seek a court injunction blocking the merger. Staples, based in Westborough, Mass., unveiled its plan in September to buy Office Depot, based in Delray Beach, Fla., through an exchange of stock.
Some industry analysts said the sale to OfficeMax should enable the merger to be completed. “This goes a long way toward clearing the roadblock,” said Donald Spindel, a retail analyst with the brokerage firm A.G. Edwards & Sons Inc. in St. Louis. “This should pretty well provide what the FTC wanted.”
Office Depot’s stock, which plunged Monday in response to the FTC’s vote, regained $3.75 a share to close at $23.125 on the New York Stock Exchange. OfficeMax’s stock gained $1.75 a share to close at $15 on the NYSE; Staples fell $1.25 to close at $22 on Nasdaq.
The stores to be sold to OfficeMax include 26 in California, with 14 in the Los Angeles area and nine in San Diego. The remaining three are in Napa, Monterey and Visalia.
Even after the sale, the combined Staples-Office Depot would be by far the nation’s largest chain of office supply superstores, with 1,086 outlets and annual sales of $10 billion. OfficeMax, based in Cleveland, would have 638 stores after the sale.
The FTC’s willingness to derail the merger shocked Staples and Office Depot, which disputed the agency’s concern about higher prices and maintained that even after their merger, they would have only 5% to 6% of the $185-billion office supplies market.
They also said the merger would further enable them to cut consumer prices, because their marriage would provide operating savings and give the new, bigger Staples even more power to keep a lid on the prices it pays to stationery suppliers.
That trend had already started, analysts said. For instance, some vendors who had not been selling products to Office Depot have begun offering the chain reduced prices “as a goodwill gesture,” with the hope of gaining “increased volume if they are chosen to supply the combined entity,” analyst William Julian of Lehman Bros. in New York wrote in a recent report.
But the FTC argued that with Staples, Office Depot and OfficeMax nearly equal in size among the new breed of office superstore, the merger would make Staples too dominant and lead to higher prices in many markets.
Separately, another provider of office equipment and supplies, Washington-based U.S. Office Products Co., said Wednesday that it acquired 11 other small competitors for a total of $23 million. The acquisitions include Discount Desk Center, based in Canoga Park.
Times staff writer Robert A. Rosenblatt in Washington contributed to this report.
