Staples and Office Depot on the FTC Decision: Good for Procurement?

By Susan Avery

December 08, 2015 at 9:02 AM

Yesterday, Office Depot issued a news release in which it states that it and Staples intend to contest a decision by the U.S. Federal Trade Commission to challenge the merger of the two companies. The companies were informed of the FTC’s decision yesterday as well.  

According to the release, “the proposed acquisition would benefit customers, employees and shareholders, and the companies look forward to a full, impartial judicial review of the competitive effects of the transaction.”

Staples and Office Depot plan to demonstrate that the FTC’s decision “is based on a flawed analysis and misunderstanding of the intense competitive landscape in which Staples and Office Depot compete. In fact, the FTC’s decision to contest the merger contradicts its own unanimous ruling in the Office Depot – OfficeMax merger in 2013, in which the commission declared the market highly competitive. At the time, the FTC ruled that Staples and Office Depot face ‘strong competition’ from ‘a host’ of competitors. The office products landscape has grown even more competitive since then.”

Ron Sargent, Chairman and CEO at Staples says, “This merger creates an unparalleled opportunity to better serve customers of Staples and Office Depot. The combined company would generate significant savings, and we’re committed to investing savings in lower prices for all customers. We’ll also use the savings to continue to invest in our people, technology and customer service.”

Likewise, Roland Smith, Chairman and CEO at Office Depot says, “The combination of Staples and Office Depot is based on creating an organization able to compete in a vibrant market with strong regional players and powerful new national entrants. We are confident that this transaction is consistent with the 2013 FTC statement in the Office Depot-Office Max merger and intend to pursue legal options in order to complete this transaction.”

Office Depot and Staples say the acquisition is expected to generate more than $1 billion of net synergies over the three-year integration period as the combined company “aggressively reduces global expenses and optimizes its retail footprint. The savings will dramatically accelerate Staples’ strategic reinvention, which is focused on driving growth in delivery businesses and in categories beyond office supplies.”

The companies intend to show that the FTC underestimates the disruptive effect of new competitors in the digital economy and ignores the vigorous competition Staples faces from numerous competitors, including office products dealers, manufacturers selling office supplies direct to business customers, dealers in adjacent categories, cooperatives of regional players, Internet resellers, big-box chains and club stores.

Even though Staples and Office Depot disagree with the FTC’s interpretation of the competitive landscape, the companies proposed divesting more than $500 million in commercial business in an effort to complete the transaction and unlock tremendous value for shareholders and customers. The FTC rejected this solution.

“This combination is good for customers. It’s good for shareholders, and it’s good for both companies,” Staples CEO Sargent says. “We intend to complete this transaction and to provide our customers with the lower prices and better service that they deserve.”

What do procurement leaders think of the proposed merger? We hear that the merger may affect corporate buyers more than consumers. Recently, My Purchasing Center LinkedIn group members started a couple of discussions presenting several different points of view. 

In a former procurement director role at a software company, Ken Hartman worked with OfficeMax (which merged with OfficeDepot) through a group purchasing organization for a few years. The GPO (Corporate United) goes out to bid periodically and OfficeMax/Depot wins on price and service, he says, “but there used to be three national office supply chains, then there were two, and now there is only one. That's a problem.” 

Bill Kohnen, a strategic sourcing professional who also has experience with the office supplies category, doesn’t think procurement worries about the proposed deal. “Fifteen years ago, the thought of Staples, Office Depot ad OfficeMax as one would trigger an uproar from corporate buyers, but not today. 

“In the digital age, company spend on pure office supplies is less significant,” he says. “There are interesting business solutions emerging from Amazon, Walmart and others. Cloud-based business to business purchasing solutions are offering consumer-like user interfaces for indirect items, and Staples/Office Depot will continue to be an attractive alternative.” 

Kohnen adds that regional office supply companies, competing on personal  service and relationships, will continue to do so.  

And Patrick Russo, Vice President, Marketing, at CoVest Sourcing Network, continues the discussion by presenting a few ways proposed savings resulting from the merger of $1 billion will be used. Staples is part of the CoVest Sourcing Network. 

Russo says that Staples continues to expand its offerings beyond selling office supplies. The company also sells facilities supplies, office machines, promotional products, furniture, technology, and business services both in stores and online. “These added services helped Staples become the number-one seller by volume of office products in the US, which is why the savings obtained from a merger are sure to bring these offerings to the forefront of the business.”

He lists a couple of these: Android Pay, a mobile payment solution that offers customers simplicity and security when paying with their Android phones. There is also a new online platform for 3D printing. “These are just a few examples of the innovative products Staples intends on offering their customers,” he says.  

What do you think? We'd love to learn your thoughts. Please respond to our blog or continue the discussion with the My Purchasing Center group on LinkedIn.

 

 



Tags: purchasing indirect office products Supply chain management Procurement Distribution sourcing
Category: Blog Post

Susan Avery

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Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com. 


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