Will The Office Depot, OfficeMax Merger Put The Squeeze On Staples?
By Sam Lewis
Second and third-largest office supply chains combined forces after seven month FTC investigation
The U.S. Federal Trade Commission (FTC) has closed its seven-month long investigation of Office Depot’s purchase of OfficeMax, allowing the two companies to merge as one. The giant new entity remains unnamed, but the alliance has formed a company that could rival Staples in the office supply world.
The decision from the FTC was based on the ability of online office supply retailers to remain competitive in the market. The retail environment has changed dramatically since 1997, when the FTC did not approve Staples’ acquisition of Office Depot. According to that decision, the merger would have been anticompetitive. “The current competitive dynamics are very different,” the FTC said. “The commission’s investigation shows that today’s market for the sale of consumable office supplies is broader.”
Office Depot and OfficeMax — the second and third-largest office supply chains in the U.S., respectively — agreed to combine businesses in February. The merger gives the newly formed company more than 2,100 stores and nearly $18 billion in annual revenue. Still at an arm’s length from catching Staples— the largest office supply retailer with $24 billion in annual revenue — the new company is in a much better position than either would have been alone.
The merger should be completed on Tuesday, Nov 5. The name of the new company remains undisclosed, along with the company’s headquarters and who will be leading the new entity. Office Depot and OfficeMax said in August that a new CEO would be named by September. At that time, the company had five unnamed candidates listed as potential leaders. Ravi Saligram, OfficeMax’s CEO, was thought to be a candidate, but later said he had withdrew his name from consideration.
There is an ongoing debate as to how the merger will affect Staples. “Having a larger competitor doesn’t bode well for Staples,” says Oliver Wintermantel, an analyst at New York’s International Strategy & Investment Group. “They have become a bigger and leaner company, so for Staples it will become harder down the road.” Others disagree, and feel Staples will gain sales opportunities as the merger will close stores. This holds especially true with contracted customers who will likely be most affected by tie-ups and disruptions in the beginning of the merger. “There will be some growing pains,” says Gary Balter, an analyst with Credit Suisse Group AG. “Staples will try to take advantage of that.”
The infancy of the newly formed, unnamed office supply chain might be the most important stage of its life. The company will need to hit the ground running, ensuring no customers are lost at the start, as it tries to gain ground on Staples.