Office Impasse: Office Depot/Staples Merger On The Verge Of Getting Shredded

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It appears that the proposed merger of Staples, Inc. (NASDAQ:SPLS) and Office Depot Inc (NASDAQ:ODP), which at one point was widely expected to succeed, is now doomed to failure. The shares of both companies are down by more 7% in trading today after the New York Post reported that Deborah Feinstein, the head of the Federal Trade Commission (FTC) Bureau of Competition will recommend that the deal not go through. The two companies, which deal primarily in office supplies, delayed the closing of their merger by 45 days towards the end of August to allow the FTC time to gather information and make a declaration, which is expected by October 12.

Jeff Smith

A scuttled deal would be a big blow to some of the hedge funds tracked by Insider Monkey, particularly Jeffrey Smith’s Starboard Value, which was loading up on both company’s shares towards the end of last year and pushed them for just such a merger. Smith held 43.55 million shares of Office Depot Inc (NASDAQ:ODP) and 8.14 million shares of Staples, Inc. (NASDAQ:SPLS) on June 30, making them two of his top eight long positions.

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While a merger of Staples, Inc. (NASDAQ:SPLS) and Office Depot Inc (NASDAQ:ODP) would create the largest office supplier in both the United States and Canada, the deal was expected to pass, unlike the failed attempt by Staples to buy Office Depot in 1997, which was shot down at that time by regulators citing antitrust concerns. Now however, even a merged business (and one even further bolstered by Office Depot’s acquisition of Office Max last year) would still be facing stiff competition in its sphere from the likes of, Inc. (NASDAQ:AMZN) and Wal-Mart Stores, Inc. (NYSE:WMT), both of which deal in some of the same products. That fact is likely why the FTC Bureau of Economics did not stand against the deal. However, Feinsand’s recommendation would carry great weight with the FTC Commissioners, with a source telling the New York Post that “The chances are very low the commissioners would go against her”.

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