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Staples-Office Depot Merger: This Isn’t Easy

Inside A Staples Inc. Store Ahead of Earnings AnnouncementInside A Staples Inc. Store Ahead of Earnings Announcement

Oh Staples, can’t you do anything the easy way?

When the Federal Trade Commission recently sued to block the office superstore from acquiring rival Office Depot (ODP), it argued that such a merger would unfairly reduce competition when it comes to selling “consumables” — pens, copy paper, etc.— to large corporations. Yesterday, Staples (SPLS) said in a brief statement that it had offered to divest up to $1.25 billion in commercial contracts, in “an effort to create an acceptable remedy to the FTC.” But Staples says that regulators rejected its proposal, without so much as a counteroffer.

My initial reaction was surprise. Not that Staples was willing to divest — there had been rumors of a possible deal with Essendant Inc. (ESND) (nee United Stationers) since before the FTC’s lawsuit — but rather that the regulators appeared to be so unreasonably stubborn.

After all, the FTC hadn’t argued that a Staples-Office Depot merger would harm individual consumers, as it had after the two companies had agreed to merge 19 years earlier. The arrival and growth of online players like Amazon (AMZN) and Walmart.com (WMT) had taken care of that. It also didn’t seem too concerned about public sector contracts for consumables, or commercial contracts for non-consumable products like office furniture. Its only objection was about Staples having a monopoly in a business arena that Staples was offering to leave. Shouldn’t that have been enough?

In the spirit of full disclosure, Staples is one of the very few companies I root for to succeed, given that its headquarters is just a few miles away from my home office. The trouble, however, is that Staples is being extremely coy about its offer. First, the retailer refuses to say if the $1.25 billion of divestment would only relate to its current commercial contract business, or if it also includes the commercial contract business of Office Depot. Second, Staples is not publicly releasing any details of what types of commercial contracts it offered to dump. One would assume they were for consumables arrangements with Fortune 1000 companies but, again, we don’t know.

For context, Staples and Office Depot report a combined $14 billion in commercial sales for North America (the international figures are not broken out between retail and commercial). When I asked a Staples spokesman how much commercial contract business Staples would have post-divestiture, he stuck with: “We have no additional information to share beyond our statement.”

That statement looked good at first blush, but is largely meaningless without additional information. If Staples wants to make its case in the court of public opinion — or at least soothe stockholders who have seen the value of their shares fall by more than 50% since the merger announcement — it’s going to have to do a lot better.