This isn’t Office Depot’s first time at the acquisition altar

February 19, 2013, 10:31 PM UTC

FORTUNE — Office Depot (ODP) reportedly is in talks to merge with Office Max (OMX), in a consolidation play aimed at challenging Staples (SPLS) for office supply supremacy. But this isn’t the first time that Office Depot has tried to lose its independence.

Back in September 1996, Office Depot agreed to be acquired by Staples in a $3.36 billion deal. The announcement was seen in some quarters as a death knell for number three player Office Max — whose shares slumped immediately on the news — while others felt that it would be able to compete more effectively as the largest remaining alternative.

Consumer advocates immediately pounced, arguing that fewer office superstores would lead to increased prices for everything from pencils to desk chairs. For example, Ralph Nader’s Public Citizen group found that a box of fax paper cost $7 less in markets where Staples and Office Depot competed with each other, compared to markets with just a single office superstore.

The Federal Trade Commission seemed persuaded by the naysayers. It issued a preliminary injunction against the merger in March 1997, after which Staples and Office Depot tried salvaging the deal by agreeing to sell 63 stores to Office Max in markets that didn’t already have a rival office supply superstore. But it was for naught, with the SEC suing to kill the deal several weeks later.

In explaining its decision to sue, an FTC director said:

“The proposed settlement doesn’t resolve the competitive problem that would lead to these higher prices. The proposal to sell stores to Office Max doesn’t address cities where three superstores compete today but only two firms will remain after the merger. Our data shows that in markets where three superstores compete, prices are significantly lower than in two chain markets. The proposed settlement also eliminates the possibility of increased competition in cities where Staples and Office Depot had planned to expand. And finally, the proposal would permanently eliminate Office Depot, the superstore that currently offers the lowest price.”

A federal judge would later agree with the FTC, in a decision that some still blame for the office superstore industry’s current travails. For example, here is what Staples founder and former CEO Tom Stemberg said during an August interview with Fortune:

“I think three companies ought to be two. And obviously I put my money where my mouth was way back when but it failed. I think the FTC was wrong, and I think the FTC knows it was wrong and that a merger would be an effective and productive in providing value to the American consumer.”

So it seems we’re finally getting to that dichotomy, albeit not in the way that Stemberg had originally envisioned. Nonetheless, the markets seem to agree with Stemberg’s larger point: Shares of all three office superstores are up sharply today.

Also worth wondering if the merger will have any impact on private equity firms that continue to quietly circle Staples. It’s possible that the Office Depot-Office Max merger could put it a bit out of their price range, particularly when combined with a recent report that Staples will be allowed to sell Apple (AAPL) products in its U.S. stores. At the very least, it will clarify the sector’s future players.

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