In a number of our posts, we have suggested that the torrid pace of mergers and acquisitions could be slowed by rising interest rates in 2016. However, we must also take into consideration the role of the federal government in approving or quashing mergers that threaten to stifle competition. It remains to be seen how the Federal Trade Commission will deal with the mega merger between Pfizer and Allergan. But in the meantime, it appears to that the large merger between Office Depot and Staples is in trouble.
According to a Forbes.com report, the FTC rejected the companies’ latest bid to merge into one giant office supplies store. Specifically, the FTC is concerned that the move would violate antitrust laws by significantly reducing competition for corporate customers who rely on their supplies. Without competition, the FTC fears that consumers would be harmed because the new company would be able to set arbitrarily high prices for products and would be under no pressure to provide quality products.
Staples reportedly offered to divest more than $1 billion in commercial contracts in order to satisfy regulators. It initially was going to part ways with $500 billion in such contracts. However, the latest offer was rejected without any counteroffer; a telltale sign that regulators will not approve the deal without further concessions.
Nevertheless, Staples and Office Depot argue that competition from non-traditional office supply providers such as Wal-Mart and Target make it difficult to compete.
Staples is pursuing a lawsuit to challenge the FTC’s position.
The story exemplifies the need for skilled mergers and acquisitions attorneys to deal with legal problems that arise with large scale transactions.