New Zealand Approves Staples-Office Depot Merger, Challenges Remain at Home

On February 4, 2015, Staples, Inc. announced its global acquisition of Office Depot, Inc. Staples’ Chairman and CEO, Ron Sargent, announced:

“We expect to recognize at least $1 billion of synergies as we aggressively reduce global expenses and optimize our retail footprint. These savings will dramatically accelerate our strategic reinvention which is focused on driving growth in our delivery businesses and in categories beyond office supplies.”

Staples has offered $6.3 billion to forge the deal with an expectation of creating a retail chain worth $39 billion in revenue and with thousands of stores. Staples is financing the deal with a $3 billion ABL credit facility and a $2.75 billion six-year loan from Barclays and Bank of America Merrill Lynch.

Predictions about Federal Trade Commission Approval

Not all analysts are positive that the Federal Trade Commission (“FTC”) will approve the merger. Many believe a key stumbling block may be that the merger would reduce the consumer and contract office supply industries to only a single retailer.

On the one hand, Bloomberg’s Mohhamod Hadi does not project much in the way of FTC attention or concern with the deal. When the FTC examined the Office Depot and Office Max, Inc. merger in 2013, they realized that the market had changed with the introduction of companies like and other online companies taking large swaths of the market share. Seth Bloom, veteran of the U.S. Justice Department, agrees as “[t]he same factors that the FTC cited in the Office Depot/OfficeMax deal are present here.

On the other hand, David Balto, former FTC Policy Director, predicted “shaky waters” ahead for Staples to get this deal approved and points out that there are actually two industries at play here: the consumer market of office supplies and contract supplying for larger companies. While the consumer market will not raise any red flags due to the plethora of competition from companies like Walmart and Target and online retailers like, on the contracts side of this deal substantial divestitures will need to occur in order for the deal to be approved. However, Staples said it could call off the deal if authorities ordered divestitures that delivered more than $1.25 billion of Office Depot’s 2014 U.S. revenue.

This would not be the first time the FTC blocked a merger between Staples and Office Depot. In September 1996, the FTC voted 4-1 against allowing a merger between the two companies. Nonetheless, activist investor Starboard Value LP “argued that the Federal Trade Commission has become more open to allowing consolidation among office supply retailers, as they face greater competition from large merchants such as Walmart and Target as well as online retailers like Amazon.

Approval for Merger in New Zealand

On June 5, 2015, the New Zealand Commerce Commission approved the acquisition saying the deal would not likely lessen competition in New Zealand. While both parties are relieved at the approval of the acquisition, analysis point out that their respective former presences in the island national are significantly smaller than in the United States. Office depot has only sixteen stores in New Zealand—which has only 4.5 million inhabitants. Commissioner Mark Berry said that the merged entity would continue to face sufficient competition from three other companies—Fuji Xerox, Office Products Depot and Corporate Consumables— and therefore would not command a sufficient monopoly to justify preventing the deal.

All Is Not Quiet on the Western Front

Despite recent success in New Zealand, all is not well for the merger back in the United States. Some shareholders do not believe Office Depot executives negotiated the best deal and are filing lawsuits against the company.

One such lawsuit was filed in April in Palm Beach County and alleged that the deal was pushed forward by Starboard in a way that “made Staples the only possible buyer of Office Depot, eliminating the possibility of other competitive offers,” and that Office Depot executives violated their fiduciary duties to maximize shareholder value. Plaintiffs’ attorneys alleged “[t]his merger was fraught with conflict of interest based on the actions of the activist shareholder.

Opposition has also come from the American Postal Workers Union which registered a complaint with the FTC alleging that “the combined companies would raise prices for their products without similar retailers to keep them competitive, essentially forming a monopoly.

“The union says that it’s not just consumers who will feel the negative effects of what they believe will be a lack of competition in the marketplace. The deal would also affect the small businesses, state governments and local governments conducting business with Office Depot and Staples.”

In the face of opposition, Office Depot is seeking a shareholder vote on its proposed $6.3 billion merger with Staples Inc. at its annual meeting on June 19.

Staples and Office Depot still need regulatory approval in Australia, Canada, China, the European Union and the United States. However, Sargent said that the companies expect to close the deal by the end of the year and remains optimistic at regulatory approval across the globe as well as shareholder approval.


You can view the original announcement of the merger here.