Staples-Office Depot merger is blocked by federal judge

Staples Inc. and Office Depot Inc. said Tuesday that they were scrapping their planned $6.3-billion merger after a federal judge blocked the deal, saying the government had made the case that the combination probably would hurt competition in office supplies.

The Federal Trade Commission had sought to block the merger of the last two national office-supply chains, contending it would allow the combined company to dictate the price of supplies, especially for corporate customers that buy in bulk.

U.S. District Judge Emmet Sullivan said in a ruling Tuesday that the FTC met its legal burden by showing it was likely that the deal would “substantially impair competition in the sale and distribution of consumable office supplies to large business-to-business customers.” He said regulators also succeeded in showing that blocking the deal would be in the public interest.

Debbie Feinstein, who heads the competition bureau at the FTC, said the ruling “is great news for business customers.”

“This deal would eliminate head-to-head competition between Staples and Office Depot, and likely lead to higher prices and lower-quality service for large businesses that buy office supplies,” she said in a statement.

In December, the FTC rejected an offer from Staples to sell $1.25 billion in contracts to work around the competition issues.

Staples, based in Framingham, Mass., is the largest “big box” office-supply chain. Office Depot, based in Boca Raton, Fla., is No. 2.

Founded in the late 1980s, they were among a group of chains led by Wal-Mart Stores Inc. that opened thousands of supersized stores for shoppers wanting to buy in bulk. But changing shopping patterns, like the demand for price deals and the move toward shopping online, have hurt them.

News that the deal was being scuttled sent Office Depot shares down more than 26% in after-hours trading. Staples shares fell more than 10%.

UPDATES:

5:17 p.m.: This article was updated with more details.