Embed Size (px)
Citation preview
1 DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved.
December 22, 2015
FTC Rejects Staples-Office Depot Deal •
•
•
•
•
• On December 21, 2015, the FTC rejected Staples’ latest offer to appease antitrust officials by transferring commercial contracts worth $1.25 billion. The FTC provided no counteroffer.
• Although Staples has suggested it is still open to negotiation, both Staples and Office Depot had previously indicated that a drawn-‐out administrative challenge would likely end the deal.
STAPLES-OFFICE DEPOT PROPOSED DEAL Staples and Office Depot announced on February 4, 2015, that Staples intended to buy Office Depot. Under the proposed agreement, Staples was to acquire all of the outstanding shares of Office Depot, and Office Depot shareholders were to receive at closing $7.25 in cash and 0.2188 of a share in Staples for each share of Office Depot held. The deal was valued at $6.3 billion.
The strategic combination was expected to deliver at least $1 billion of annualized synergies by the third full fiscal year post-‐closing, according to the companies’ announcement.
The merger was prompted by pressure from activist investor Starboard Value. Starboard owns a stake of about 6% in Staples and about 10% in Office Depot. In a letter to Staples, Starboard said that cost cuts enabled by a combination of the companies could more than double operating profits, and that the two chains could be more efficient about closing stores when combined. The letter said that Starboard executives had met with management of both companies to urge them to make the deal, and that if Staples’ management did not seriously pursue the transaction, it would be “a clear sign that significant leadership change is needed at Staples.”
2 DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved.
CHANGING BUYING HABITS AND INCREASED COMPETITION The digital age has changed the buying habits of consumers, who do not buy as many pens and pencils and the like as they used to. Staples and Office Depot argued that the proposed merger was necessary to compete in a new world where bigger store chains and online competitors had reduced prices and where the number of competitors had grown exponentially. But a combined Staples and Office Depot would have condensed the industry from three major players to one in just a few years, and that raised antitrust concerns.
FTC FILES LAWSUIT BLOCKING DEAL On December 7, 2015, the FTC filed an antitrust lawsuit against the transaction, seeking to block the acquisition, arguing that a tie-‐up of the last large national office-‐supply chains would eliminate important competition. The lawsuit alleges that the transaction would mean higher prices and fewer options for big companies that buy office supplies in bulk.
The companies have said that the FTC’s decision to file suit was “based on a flawed analysis and misunderstanding of the intense competitive landscape in which Staples and Office Depot compete.”
The lawsuit marks the second time the FTC has intervened to prevent the two companies from combining. In 1997, the commission won a ruling from a federal judge that blocked an earlier planned Staples-‐Office Depot merger.
Both companies argue that the outcome should have been different this time because the industry has evolved over the past two decades, including through growing retail competition from the Internet and big-‐box retailers. The FTC acknowledged this evolution in 2013, when it allowed Office Depot to merge with OfficeMax, which was then the third-‐largest office superstore chain.
The FTC’s new lawsuit does not focus on how further consolidation would affect everyday retail customers. Instead, it addresses the big national business accounts served by Staples and Office Depot.
The companies had sought to ease FTC concerns by offering to shed hundreds of millions of dollars in corporate contracts, offering to give up $500 million in a pretrial hearing on the matter. The FTC was not appeased by the offer, so Staples raised the concession to $1.25 billion. The FTC rejected this latest offer without providing a counteroffer. Staples has said that it is open to negotiations, but also that a protracted administrative challenge may kill the deal altogether.
3 DEBORAH WEINSWIG, EXECUTIVE DIRECTOR–HEAD OF GLOBAL RETAIL & TECHNOLOGY [email protected] US: 917.655.6790 HK: 852.6119.1779 CN: 86.186.1420.3016 Copyright © 2015 The Fung Group. All rights reserved.
Deborah Weinswig, CPA Executive Director—Head of Global Retail & Technology Fung Business Intelligence Centre New York: 917.655.6790 Hong Kong: 852.6119.1779 China: 86.186.1420.3016 [email protected] Filippo Battaini [email protected]
Marie Driscoll, CFA [email protected]
John Harmon, CFA [email protected]
Aragorn Ho [email protected]
John Mercer [email protected]
Shoshana Pollack [email protected]
Kiril Popov [email protected]
Jing Wang [email protected]
Steven Winnick [email protected]
HONG KONG: 10th Floor, LiFung Tower 888 Cheung Sha Wan Road, Kowloon Hong Kong Tel: 852 2300 2470 LONDON: 242-‐246 Marylebone Road London, NW1 6JQ United Kingdom Tel: 44 (0)20 7616 8988 NEW YORK: 1359 Broadway, 9th Floor New York, NY 10018 Tel: 646 839 7017 FBICGROUP.COM
