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Staples’ showdown with FTC over Office Depot merger heads to court

A Staples store in Danvers.
A Staples store in Danvers.(Lisa Poole/Associated Press/File)

Staples’ high-profile legal battle to acquire rival Office Depot will come to a head on Monday, when a US District Court judge in Washington weighs whether to block the merger.

The Federal Trade Commission will try to convince the judge to put the deal on hold with an injunction, until an administrative law judge can hold a full trial on the merits of the case. That trial is scheduled to begin May 10 in Washington.

Both sides have held settlement talks in recent weeks, but no agreement has been announced.

The agency argues that the merger would give too much market power to Staples, unfairly affecting large businesses that rely on the competition between the nation’s two largest players to get the best deals for consumable items like pens and printer paper.

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The agency also argues the merger would leave no national competitor to Staples, because the country’s third-largest office supplier, Brockton-based W.B. Mason, is essentially just a regional competitor.

Staples executives say the merger would result in better prices for those big-business customers because of the resulting cost savings, and that the FTC is ignoring the ascendancy of online competitors, led by Amazon.

Staples’ chief executive, Ron Sargent, and Office Depot CEO Roland Smith took the unusual step on Friday of issuing an “open letter to customers,” saying the FTC’s efforts to block the merger “are based on a flawed analysis of the marketplace” and that it has “cherry picked a few facts to fit its narrative.”

Much of the letter mirrors points Sargent made to investors and analysts during a March 4 conference call. Sargent called the fight for the merger’s clearance a “long and frustrating road.”

That journey began in September 2014, when Framingham-based Staples began discussions about a possible acquisition of Office Depot. By February 2015, both companies had a deal to announce, one valued at the time at more than $6 billion.

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The merger, the companies said, would offer significant cost synergies and enable them to pass those savings on to customers. Together, the two companies would have combined annual sales of nearly $40 billion. The deal, they said, was expected to close by the end of 2015. That did not happen, in large part because of the FTC opposition. The agency sued in December, after unsuccessful efforts by Staples to reach some sort of settlement.

The merger has been cleared by regulators in Australia, New Zealand, China, and the European Union. Among the concessions to win regulatory approval: Staples’ announcement last month it and Office Depot would divest more than $550 million worth of wholesale business to Essendant (formerly known as United Stationers).

Michael Tesler, a partner at the consultancy Retail Concepts in Norwell, said Staples is pursuing the Office Depot deal for its long-term survival. A better move, he said, would be to dramatically alter its own retail stores.

“We’re basically looking at the same store we were looking at 20 years ago,” said Tesler, who also teaches at Bentley University. “They’ve got a weak competitor who is down and now they can finish them off. . . . I don’t think this [acquisition] is an act of strength. It’s an act of weakness. I don’t think Staples is resonating or growing or connecting with their target customers.”


Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.

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