U.S. FTC Approves OfficeMax And Office Depot Merger

By Anna Rose Welch, Editorial & Community Director, Advancing RNA

Combined company looks to save millions, cut underperforming stores, improve efficiency  

OfficeMax and Office Depot announced that the U.S. Federal Trade Commission has approved the merger of the two companies. This transaction is expected to close November 5, 2013.

Since February 2013, the companies have been planning a merger because the financial benefits would result in a stronger and more competitive company. For instance, the combined company would have had $17 billion in combined revenue for the 12 months ended June 29, 2013. Now that the deal has been approved, the combined company will have a significantly improved financial standing and an increased ability to deliver long-term operating performance and improvements. Upon merging, the combined company expects to cut as much as $600 million in costs, not including the savings from the yet-undetermined number of store closings that will take place.

Neil Austrian, CEO of Office Depot says “This merger represents a new beginning for Office Depot and OfficeMax — one that will enable us to create a stronger, more efficient global provider better able to compete in the dynamic and rapidly changing office solutions industry.” Considering some of the omni-channel improvements being made by Staples, the largest office-supplies chain, the merger of these two businesses comes at a key time to better compete against Staples. Analyst Oliver Wintermantel says that clearing the field of underperforming stores has made for a “bigger and leaner company, so for Staples, it will be harder down the road.”

The FTC’s decision to approve the merger is a sign that the landscape for office supply retailers has changed. This is not the first time that Office Depot has attempted an acquisition. In March 1997, the FTC shut down a proposed acquisition of Office Depot by Staples because opponents believed that fewer office superstores would lead to increased prices on all office equipment. Similarly, other opponents felt the merger between Office Depot and Staples would cripple OfficeMax, which immediately experienced a slump in shares upon the announcement.

However, following its most recent decision to approve the Office Depot-OfficeMax merger, the FTC declared that, “The current competitive dynamics are very different. The commission’s investigation shows that today’s market for the sale of consumable office supplies is broader.”

While the FTC’s approval is a key milestone, the combined company is expecting to encounter “growing pains” as it moves forward. The company is currently in the process of interviewing for a new CEO and facing declining demand as offices become increasingly digital and need fewer supplies. Similarly, while the combined company will receive a financial boost following the merger, Staples currently earns more than $24 billion in sales, making it a tough rival to beat. In fact, some analysts even venture to say that Staples could pick up more sales because of OfficeMax-Office Depot store closings and other merger adjustments that could cause slower business. However, regardless of the challenges ahead the company remains confident in its decision to merge, saying, “Without it, one would have gone away in a few years.”