Staples gearing up for Depot integration

The message from Staples this week is that it is moving full-steam ahead towards the Office Depot acquisition. However, questions are surfacing about whether or not this is optimistic.
Ron Sargent and his team made sure they sent out all the right signals about the proposed Office Depot acquisition during this week’s quarterly earnings conference call.

The Staples CEO said that acquisition plans remain “on track” and “we anticipate that the acquisition will close by the end of 2015”.

Sargent confirmed that he and his senior management team are knee-deep in paperwork in order to provide all the information required to respond to the Federal Trade Commission’s (FTC) second request for information.

Sargent said on the earnings conference call that he has an idea when this work will be completed, but did not specify a date, adding that Staples will issue a press release when it had “certified the substantial compliance” with the second request. As far as he is concerned, all things are pointing to a successful completion of the deal.

Of course, this doesn’t mean that he knows what the FTC’s decision is going to be, with all eyes focused on the office supplies market for Fortune 1000 companies, a customer segment where, between them, Staples and Depot enjoy a dominant position.

There are concerns that these customers would face a severe lack of choice if Staples and Depot tie the knot, but Sargent and his team made the most of their opportunities on Wednesday to highlight the presence of a number of credible competitors.

At various times during the call, Amazon was described as “a formidable competitor”, “a significant threat to the B2B office products industry” and “a very strong competitor for us in and in our contract business”.

Sargent also stated that large companies “have lots of choices” where they can purchase their office supplies from, such as direct from manufacturers, diversity suppliers or a big regional player like WB Mason and HiTouch Business Services. He also referred to the new EPIC Business Essentials joint venture between US dealer groups Independent Stationers and TriMega.

Whether any of the above can provide the kinds of service levels and pricing at a national level for these large and complex Fortune 1000 accounts is debatable.

However, where I think Sargent is right is in his assessment of the recent FTC decision to block the merger between Sysco and US Foods. Food and related supplies are mission critical products to restaurateurs and food outlets in a way that office supplies are not to pretty well all customers, and there are significant differences between food and office supply distribution.

What the Sysco/US Foods decision did show, though, was how the FTC is prepared to block a ‘two into one’ market situation. That by itself is probably the most significant factor in relation to the Depot/Staples deal and why Staples is so keen to point to all the other competitors out there.

The original Staples/Office Depot acquisition agreement had 4 November as a cut-off date for the completion of the deal, but that could be extended to February 2016 if antitrust approval was still outstanding. With the amount of work still to be done on the second request and the complexity of the task at hand, that November date would appear unlikely – more likely late November or early December.

Source: Andy Braithwaite, OPI

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