ROBERT SIEGEL, HOST:
Staples announced today that it plans to buy its chief rival, Office Depot, for $6.3 billion. This is the company's second attempt at a merger. They tried it back in 1997, but antitrust regulators blocked it then. NPR's Yuki Noguchi reports that the two office supply chains believe that they have a stronger argument for why their merger should pass muster this time around.
YUKI NOGUCHI, BYLINE: The world isn't what it was the first time this deal came up for review nearly two decades ago - at least, that's what Staples CEO Ron Sargent told investors this morning.
(SOUNDBITE OF ARCHIVED RECORDING)
RON SARGENT: Our customers' needs and expectations are changing rapidly. Paper-based office supplies are being replaced by technology. Customer demand continues to shift online. We're going up against a wider set of retail and online competition.
NOGUCHI: By combining, Sargent says, the companies will save a billion dollars a year in costs and mount better competition against those online rivals like Amazon or Walmart. And, he says, they will fight to push the deal through this time.
(SOUNDBITE OF ARCHIVED RECORDING)
SARGENT: Both companies have agreed to vigorously contest any potential challenges to the transaction by antitrust authorities.
NOGUCHI: David Balto was a lawyer at the Federal Trade Commission on the team that successfully sued to block the first merger attempt. He argues the market has, if anything, fewer competitors now.
DAVID BALTO: It's easier to use a changing landscape to approve a merger when there's a significant competitor left. There won't be anybody else left if this deal goes through.
NOGUCHI: Two years ago, Office Depot bought rival OfficeMax. Balto says this new deal would create a brick-and-mortar office supply monopoly. He says government agencies and corporations that order supplies in bulk would not have an alternative. And, he says, regulators have already scrutinized wholesale markets in other proposed mergers, including between Sysco and US Foods.
BALTO: The FTC has been looking at mergers in distribution markets much more intensely in the last year or so.
NOGUCHI: But Motley Fool analyst Jason Moser says, if the companies cannot combine, they will face an existential question.
JASON MOSER: How do these guys protect themselves from becoming Amazon?
NOGUCHI: Moser says as Amazon and others seek to make inroads into this marketplace, price competition will be robust.
MOSER: With relatively low barriers to entry in a market like this, when you look at the way that the Internet has completely disrupted the entire retail space, it is becoming a much more open playing field today than it once was.
NOGUCHI: Staples and Office Depot say they hope the deal will close by the end of the year. Staples will pay Office Depot a quarter of a billion dollar breakup fee if regulators scrap the deal. Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
