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FTC steps up OfficeMax-Office Depot inquiry

by William McConnell | Published April 10, 2013 at 9:53 AM

The Federal Trade Commission on Monday stepped up its investigation of the planned merger of big-box office supply retailers Office Depot Inc. and OfficeMax Inc. by issuing a second request for information on the deal.

Many expected the FTC to extend its review beyond antitrust regulators' initial 30-day waiting period. The companies said they "remain optimistic about the regulatory process and will continue to work cooperatively with the FTC as it conducts its review of the proposed combination."

The companies announced their plans to merge on Feb. 20. Terms of the deal call for Boca Raton, Fla.-based Office Depot to issue 2.69 shares for each share of Naperville, Ill.-based OfficeMax. The merger is valued at $1.2 billion.

The antitrust review is expected to draw a lot of attention because the FTC thwarted a previous attempt to consolidate the industry in Staples Inc.'s 1997 bid to acquire Office Depot.

Either party may terminate the deal if it has not cleared all required conditions by Dec. 31, although that deadline will be extended to April 30, 2014, if the only outstanding issue is antitrust clearance.

Under the merger agreement, Office Depot and OfficeMax have agreed to divest or hold separate assets, or commit to any other action necessary to avoid an FTC challenge to the transaction under the antitrust laws unless the action "would reasonably be expected to have a material adverse effect after the closing on the combined businesses."

In discussing the deal with analysts when it was announced, Office Depot CEO Neil Austrian and OfficeMax chief executive Ravi Saligram insisted that they justify their deal on antitrust grounds because of the changes the industry has undergone since the would-be Staples deal, which like this one would have combined two of the top three office supply retailers.

They said the rise of Internet retailing and the incursion of mass merchants such as Target Corp., Wal-Mart Stores Inc., Best Buy Co. and Costco Wholesale Corp. into the office supply market ensures that sufficient competition will remain after their merger. They would not address the likelihood that divestitures in cities where the two chains are the only two big-box office retailers would be required.

However, one antitrust expert said pricing data will ultimately decide the deal's fate, not the transformation of the industry.

In stopping the Staples-Office Depot deal, the FTC relied on evidence that prices were higher where there were two office superstores than where there were three and blocked the deal on that ground.

The companies announced Tuesday that the have appointed a CEO selection committee to oversee the choosing of a chief executive for the combined company.

Office Depot board member Nigel Travis, CEO of Dunkin Brands Group Inc.; and OfficeMax board member Jim Marino, former president and CEO of Alberto Culver Co.; will co-chair the selection committee. The other members are Office Depot directors Tom Colligan and Marty Evans; Rakesh Gangwal, nonexecutive chairman of the board of OfficeMax; and OfficeMax director Francesca Ruiz de Luzuriaga.

Although both incumbent CEOs will be considered for the new CEO job, external candidates will be considered as well, the company said.

The companies also announced the selection of key executives to oversee the integration planning process for the merger. Saligram and Austrian will provide overall leadership of the integration planning process. However, OfficeMax executive vice president, CFO and chief administrative officer Bruce Besanko and Office Depot executive vice president and CFO Mike Newman will co-chair the integration planning process and have been charged with drawing up a plan designed "to ensure a smooth and productive transition and capture the projected $400-600 million in annual cost synergies by the third year following the transaction's close," the companies said.

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FTC steps up OfficeMax-Office Depot inquiry

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