Federal regulators scrutinizing Staples’ $6 billion-plus bid to buy rival Office Depot are leaning against the deal and are preparing to block it, The Post has learned.
Regulators are wary of a tie-up that will result in a single nationwide office supply giant to serve big corporate and government clients, two sources said.
The Federal Trade Commission has until Dec. 8 to decide whether to sue to halt the deal after extending its review.
“They are ramping up for litigation,” said one source close to the situation.
There’s also the possibility that the agency will delay its decision again in an effort to extract more concessions from Staples, which reached the deal to buy Office Depot in February.
As it stands, two of the four commissioners are believed to oppose the deal, and the FTC doesn’t like votes to end in a 2-2 tie. In the event of a deadlocked vote, the agency does nothing.
To scrape by in the vote, Staples will likely need to swing one of the two commissioners who oppose the deal over to its side, sources said.
That’s going to be tough. The agency’s chief concern is that Staples and Office Depot are the only two national office suppliers serving corporate customers. By one estimate, they handle all of the Fortune 1000 office supply contracts.
Staples has roughly 1,200 stores that generate $9.6 billion in sales. But the company generates almost as much revenue from its commercial business, which is predicted to hit $8.4 billion this year.
To ease concerns, Staples has offered to transfer roughly $600 million in back-end contracts to office supply wholesaler Essendant.
The theory is that would give Essendant more pricing power when buying products, which it resells at a lower price to regional office suppliers like W.B. Mason.
Nevertheless, it does not turn Essendant into a nationwide supplier to rival a combined Staples-Office Depot.
The FTC in recent weeks has asked some large Staples customers what they thought of the proposed “remedy,” and several said it would lead to less competition and higher prices, sources said.
If the FTC acts now to halt the deal before the European regulators rule on the merger, it can get a ruling before an in-house administrative law judge instead of suing in federal court.
For instance, the FTC earlier this month filed an administrative complaint to stop two West Virginia hospitals from merging.
The FTC also has a better shot at winning before an administrative law judge than in federal court, a source said.
While the FTC’s in-house court can take months, there is no rush, since the European Commission isn’t expected to wrap up its merger review until March. Staples and the FTC declined to comment.