Judge urges Staples, Office Depot to discuss $6.3B deal

A U.S. judge urged Staples Inc. and Office Depot lawyers to “sit down and talk” with the Federal Trade Commission about terms for resolving the agency’s opposition to their proposed $6.3 billion merger.

That suggestion came from U.S. District Judge Emmet Sullivan in Washington, D.C., on Tuesday after Staples lawyer Diane Sullivan delivered a nearly 90-minute argument urging him to reject the FTC’s bid for an order blocking a tie-up of the two largest American office-supply retailers. The government hadn’t shown it would hurt competition and spur price increases, she said.

“Based on the evidence, they’ve fallen woefully short,” the lawyer told the judge, assailing the regulator’s definition of the relevant competitive landscape and its preparation of witness testimony.

Staples operates seven stores in the Indianapolis area. Office Depot has four OfficeMax stores and four Office Depot stores in the area.

The merger would create a retail chain with about $39 billion in revenue and thousands of stores.

The hearing, which started March 21, came to an abrupt end earlier in the day when FTC lawyers rested their case and attorneys for Staples told the judge they wouldn’t be calling any witness for the defense. Diane Sullivan called the government’s case an “utter failure.”

Those developments put lead FTC trial lawyer Tara Reinhart on the defensive, forcing her to respond to her opponent’s comments while answering questions from a skeptical judge, who asked what—if any—recourse the agency had if he declined to block the deal.

A big company shopping for office supplies now only has two choices, Reinhart said. She disputed the companies’ assertions that Amazon.com Inc.’s year-old Amazon Business unit could be on equal footing with them by 2017.

There is “no guarantee” that Amazon.com will be able to land a single large customer, Reinhart said.

Difficult remedy

Joining Reinhart at the podium, Deborah Feinstein, the head of the FTC’s competition bureau, told the judge that even if the agency could seek divestitures if the merger goes ahead, “It’s very difficult after the eggs have been scrambled to get that remedy.”

Judge Sullivan’s decision will probably determine the fate of the merger. The companies have said they will abandon the deal if it’s blocked by a court order, which would send the case to an administrative trial before the FTC.

“I encourage the parties to resolve this,” the judge said after hearing from both sides. He directed them to file proposed findings of fact and conclusions of law next week and to return for final arguments on April 19.

“This is really unusual,” Andre Barlow, an antitrust lawyer at Doyle Barlow & Mazard Pllc, said about Staples’ decision to forgo witnesses. “I assume Staples is fairly confident.”

The FTC maintains the combination of Staples and Office Depot will mean one company will dominate the market for the sale of pens, notebooks and paper to large companies. The two companies go head-to-head for that businesses and combining them will lead to higher prices for corporate customers, the agency says.

Competition benefits

That competition provides “tangible benefits that cannot be denied,” Reinhart said during her closing argument.

The judge asked why the FTC was excluding ink and toner as part of the basket of products at issue in the case, calling it a “huge issue.” He also asked why it was focused only on the biggest corporate customers.

Over the course of the 10-day hearing, the judge has criticized the FTC’s handling of the case.

He first complained that the agency attempted to elicit false information from an Amazon.com executive to support its case, describing the FTC’s actions as “very disturbing.” Last week, he said he wouldn’t consider some testimony the commission planned to introduce about Amazon.com’s ability to be a competitor against Staples and Office Depot.

Shares of Staples gained 2.6 percent, to $11.16 each, on Wednesday morning, while Office Depot shares rose 1.7 percent, to $7.69.