Details Released in Staples Antitrust Case
18 May 2016 - 4:10PM
Dow Jones News
WASHINGTON—Failed merger partners Staples Inc. and Office Depot
Inc. lost on all of the critical issues in their court battle with
government antitrust enforcers, and the companies' decision not to
present defense evidence appears to have hurt their case, court
records released Tuesday show.
Details of a federal judge's 75-page ruling—released after
confidential business information was blacked out—make clear that
Judge Emmet Sullivan had little qualms in embracing the Federal
Trade Commission's main contention in the case that a merged
Staples-Office Depot would mean diminished competition and higher
prices for large national business that buy office supplies in
bulk.
The office superstores quickly abandoned their deal after the
May 10 ruling.
Big corporations need specialized office-supply services that
only Staples and Office Depot can provide, including sophisticated
information-technology capabilities, personalized service and
expedited delivery capabilities, Judge Sullivan said.
The judge said testimony during two weeks of court proceedings,
including from executives at McDonald's Corp. and American Electric
Power Co., demonstrated that corporate customers have been able to
get lower prices because of competition between Staples and Office
Depot.
"This testimony shows that absent Office Depot, large B-to-B
customers would lose tremendous leverage and likely have to pay
higher prices for consumable office supplies," Judge Sullivan
wrote.
One of the big questions in the case was whether Amazon.com
Inc., which last year launched a new website to sell office
supplies to business customers, would emerge as a near-term
competitive alternative for corporate customers to a postmerger
Staples.
Staples and Office Depot portrayed Amazon as a major competitive
threat, but Judge Sullivan said the future was too uncertain.
The judge said it was an "unenviable task" to assess Amazon's
competitive prospects in the corporate office-supply space, noting
the online giant had "impressive strengths" including brand
recognition and a user-friendly and reliable Internet marketplace.
But the judge also said the company's office supply portal faced
challenges, including its lack of experience in bidding on large
corporate contracts and its lack of ability to control the prices
set by third-party vendors who sell office supplies on Amazon's
site.
Large customers "still do not view Amazon Business as a viable
alternative to Staples and Office Depot," the judge wrote, adding
that the evidence so far didn't show that Amazon could fully
replace competition over the next three years and compete on par
with a merged Staples-Office Depot.
Judge Sullivan during the court proceedings expressed concern
about allegations by Staples that the FTC had improperly urged an
Amazon witness to play down the company's ability to compete,
allegations the commission denied. The judge's ruling referenced
his prior concerns but said, "No evidence of an improper motive on
the part of the FTC was ever presented."
Staples and Office Depot caused quite a stir in legal circles by
declining to present a defense to the FTC's case, a tactic that
legal observers said was unheard of in merger cases.
While the office superstores argued the FTC's case was so weak
that no defense evidence was necessary, Judge Sullivan's opinion
signaled the companies' defense strategy hampered their case.
The judge in several passages noted that the companies chose not
to rebut certain FTC evidence or present their own evidence to
support claims they made at the beginning of the proceedings.
For example, Judge Sullivan referenced objections by Staples and
Office Depot to the way the FTC's economic expert calculated their
market shares, but he said the companies "produced no expert
evidence during the hearing to rebut that methodology."
A Staples spokesman on Tuesday said, "We're now focused on the
future of Staples, not the past." Office Depot declined to
comment.
An FTC official applauded the ruling last week but had no
further comment on the public release of the opinion.
Judge Sullivan also said the companies didn't support their
claims about the cost-savings produced by the merger or the merits
of a settlement proposal they made to the FTC in an attempt to save
the deal.
"Because defendants rested at the close of plaintiffs'
case-in-chief and called no witnesses to support their arguments
related to remedies or efficiencies, they have not met their
burden," the judge wrote.
Judge Sullivan said he understood that Staples and Office Depot
"genuinely believe this merger would be best for their companies,
the industry and the public." In blocking the merger, the judge
said he was "optimistic" that the companies "will find ways to
innovate, evolve and remain relevant in the rapidly changing office
supply industry."
Drew FitzGerald contributed to this article.
Write to Brent Kendall at brent.kendall@wsj.com
(END) Dow Jones Newswires
May 18, 2016 01:55 ET (05:55 GMT)
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