The odds that the $6 billion merger between Staples (SPLS) and Office Depot (ODP) will win Federal Trade Commission approval continue to grow longer.
While the agency has delayed its decision until Dec. 8 (vs. the original expectation of an October ruling), the market is already pricing in the possibility of the deal not happening. The New York Post reported on Sunday that the FTC is leaning toward rejecting the tie-up.
As the late Yogi Berra once said: "It's deja vu all over again," as the agency nixed a similar Staples/Office Depot tie-up back in 1997.
The FTC swooped in back then to save us from that deal's potentially devastating effects. At the time, William J. Baer, the then-director of the FTC's Bureau of Competition, said the agency's action was all about lower prices for consumers.
"If the merger is allowed to proceed, consumers will pay millions of dollars more for their copy paper, envelopes, pens and file folders," he said. When I first read that, I thought it was a joke -- or part of a bad Saturday Night Live skit -- but that's an actual quote, folks.
I don't think much has changed at the FTC since then. The regulators there still believe that they have to save us from the horrors of overpriced office supplies.
As for Baer, he later moved on to the Justice Department's antitrust division. And when his new employer sued in 2013 to block Anheuser-Busch InBev (BUD) from acquiring the 50% of Grupo Modelo that the firm didn't already own, he said: "This is the sort of product that matters to consumers. If you have a very slight price increase that happens because of this deal, it could mean that consumers will pay billions of dollars more."
That deal ultimately happened, but BUD had to sell some lines to rival Constellation Brands (STZ) to make the Justice Department happy. I'm sure it gave the regulators a warm, fuzzy feeling to protect the lowly consumer from overpriced beer.
As for the proposed Staples/Office Depot merger, investors will get $7.25 in cash and 0.2188 SPLS stock for every ODP share if the tie-up goes forward. That values the merger at $9.92 per Office Depot share -- a huge 52% premium over Office Depot's $6.54 closing price yesterday. That's the market's way of saying this deal ain't gonna happen.
My question: Why should the FTC block a Staples/Office Depot tie-up? The world has changed a great deal since 1997. At this point, the merger might be more about survival than creating a monopoly.
As a small-business owner, I can tell you that the bricks-and-mortar office-supply business isn't what it used to be. I rarely head over to my local Staples these days unless there's a compelling sale. Otherwise, it's simply too expensive. I can get what I need much cheaper from Wal-Mart (WMT), Costco (COST) or Amazon (AMZN).
Maybe a Staples/Office Depot merger would actually change that and benefit consumers -- but the FTC and its backward thinking don't see it that way.
