Staples (SPLS) Owners Need Not Fret the FTC’s Latest Showboating

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So, let me get this straight. The Federal Trade Commission’s antitrust arm is fine with the fact that, when it approved the union of American Airlines (AAL) and. U.S. Airways, it combined the nation’s third- and fourth-biggest airlines into an entity that was the biggest in the business, and noticeably bigger than the next-biggest player.

Staples (SPLS) Owners Need Not Fret the FTC's Latest ShowboatingAnd, just this year, the FTC approved the merger of the two dominantly-big real estate website operators — Zillow Group (Z) and Trulia — allowing one company to own three times as much market share as the next-biggest name in the business (Realtor.com).

Yet this same FTC is balking at the potential pairing of Office Depot (ODP) and Staples (SPLS), both of which are struggling to turn a profit of their own because behemoths like Amazon (AMZN) and Walmart (WMT) are quietly, inconspicuously beating them at their own game?

Yeah, sounds about right.

I’d say the country’s biggest consumer protection agency is doing a bit of grand-standing following a handful of successfully-thwarted mergers over the course of the past year or so.

The good news is, neither ODP investors nor SPLS investors (probably) have a great deal to worry about here. The showboating is nothing more than just that … noise-making for the sheer sake of making noise.

The FTC Seems Concerned, But…

On the off-chance you’re reading this and haven’t heard the latest, the proposed merger of office supply retailer Staples with competitor Office Depot has hit a small, superficial regulatory snag. Namely, the Federal Trade Commission has requested a second batch of information from the two companies regarding the Staples acquisition of Office Depot, and further asked the suitor to do nothing for the next 45 days while it reviewed the newer paperwork.

Neither company specifically described the nature of the requested documents, but presumably the agency is looking deeper into the buyout’s specifics, looking through them with an eye for antitrust (monopoly) concerns.

Or, maybe the FTC is just showing its teeth because it can, having developed a bit of a righteous attitude after nipping the merger of food company Sysco (SYY) and U.S. Foods in the bud earlier this year, shortly after it blocked the team-up of Comcast (CMCSA) and Time Warner Cable (TWC).

There’s just one problem with the delay of the ODP-SPLS deal … there’s no real need for it. Or, if there is a perceived need for it, the folks working at the Federal Trade Commission may want to take a closer look at the way this sliver of the business world works.

Yes, between Staples and Office Depot, the two retailers effectively dominate the office supply retail stores category. They do NOT, however, dominate the office supply retailing category.

Although they’re not categorized as suppliers, and though the specific numbers aren’t published anywhere, the aforementioned Walmart and Amazon make as much trouble for Office Depot and Staples as ODP or SPLS ever could for each other.

The proof of the premise is in the revenue figures. Prior to its acquisition of Office Max in 2013, Office Depot had posted waning sales in six of its past seven years. And, even with the Office Max deal factored in on a pro-forma basis, revenue is still falling. Meanwhile, Staples has also seen revenue fall for the better part of the past three years, while margins have been whittled away to practically nothing.

The pairing of the two struggling companies isn’t apt to change the revenue fate of either. Together, however, it does give them a chance of survival, which if anything prevents Walmart (and to a lesser degree, Amazon) from quietly developing a true monopoly in one of the many categories of products it carries.

Bottom Line for SPLS and ODP

The good news is, the FTC has to innately understand that office supplies are sold through venues other than through Office Depot and Staples. This request for additional information should be little more than posturing, if for no other reason than to send a message to other would-be suitors …  a message suggesting that the commission isn’t rubber-stamping approvals the way it did (perhaps sloppily) in recent years.

In the end, however, the move doesn’t appear to be any real threat to the acquisition. The two companies were each planning on closing competing stores anyway, so nixing the merger now wouldn’t actually maintain competition.

In other words, for SPLS and ODP shareholders, the Federal Trade Commission’s request is the least of your worries.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/08/staples-spls-owners-need-not-fret-ftcs-latest-showboating/.

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