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Staples and Office Depot: U.S. Government 'Simply Wrong' for Trying to Block Merger More than a year ago, Staples offered to buy Office Depot in a transaction then valued at about $5.5 billion, pressured by declining sales in the office supplies sector and the rise of rivals.

By Phil Wahba

entrepreneur daily

This story originally appeared on Fortune Magazine

Staples and Office Depot took their merger case directly to customers on Friday, saying in an open letter that the U.S. government is "simply wrong" for blocking their proposed deal.

More than a year ago, Staples offered to buy Office Depot in a transaction then valued at about $5.5 billion, pressured by declining sales in the office supplies sector and the rise of rivals, most notably and W.B. Mason.

But the Federal Trade Commission sued to block the deal, arguing it would severely curtail competition in the "consumables" space (paper, pencils, etc.). The FTC is trying to win a preliminary order from a federal judge to prevent the merger so that the agency can proceed with an administrative trial in May. A hearing is set for Monday in U.S. District Court.

"The FTC's actions to stop this transaction are based on a flawed analysis of the marketplace and a deep misunderstanding of the competitive landscape," the CEOs of Staples and Office Depot, Ron Sargent and Roland Smith, say in the joint letter.

They later conclude: "The FTC is simply wrong. The combination of Staples and Office Depot is good for customers."

The two retailers accuse the FTC of ignoring the rise of Amazon in the big business service part of the office supplies industry, where Staples is still enjoying growing sales and focuses on Fortune 100 firms. (Retail sales in North America have been shrinking for years, and Staples has closed hundreds of stores.)

"The government is concerned with protecting the 100 largest companies in the United States," Staples and Office Depot wrote, seemingly mocking the FTC's priorities. The companies restated their intention to lower prices thanks to lower costs consolidation would bring them.

Staples and Office Depot said the FTC is focusing too narrowly on office supplies while ignoring items like cleaning supplies and office furniture.

The FTC did not immediately respond to a request for comment, but has previously argued that the combined company would create an overly dominant player, cornering some 70 percent of the corporate services market.

Staples has agreed to sell off its about $550 million of its wholesale business to Essendant -- conditional on its Office Depot merger going through -- in a move to sway the FTC. But so far the promised divestiture hasn't had the desired impact.

"This has been a long and frustrating road, but we look forward to a fair and impartial hearing," the companies said.

Phil Wahba joined Reuters in 2008 and has covered the exchanges, equity capital markets (IPOs), corporate bankruptcies and now covers retailers such as department stores and booksellers

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