What: Shares of office supply company Office Depot (NASDAQ:ODP) slumped on Monday as uncertainty regarding its acquisition by Staples (NASDAQ:SPLS) continued to drive investors away. At noon EST Monday, Office Depot was down about 14% to $5.71 per share, nearly 50% below the original offer price of $11 per share. Shares of Staples also slumped, down 8% at noon.
So what: Staples' acquisition of Office Depot, which was announced in February, has faced regulatory scrutiny in both the U.S. and Europe. The concern is that a merger would lead to higher prices on the commercial side of the resulting company, leaving large organizations little choice in their office supply vendor.
The New York Post reported in late November that the FTC was leaning toward blocking the deal, despite Staples' offer to transfer $600 million in contracts to a competing office supply wholesaler. Bloomberg reported a few days later that Staples was willing to offer additional concessions to appease regulators, offering to sell Office Depot assets with revenues of $1.25 billion. Investors are becoming increasingly pessimistic that the deal will go through, however, and shares of Office Depot are nearly back to pre-acquisition announcement levels.
Now what: The FTC is set to make a decision on Tuesday, Dec. 8, but the agency may extend the review period further. Meanwhile, European regulators have until March 9 to make a decision, so even a positive result from the FTC doesn't guarantee that the deal will go through.
A successful acquisition is the best result for Office Depot and its shareholders. The company has long been an also-ran in the office supply industry, far less profitable that Staples, and its revenue had been falling for years prior to its own acquisition of Office Max. Investors aren't convinced that the acquisition will be approved, sending the stock tumbling on Monday, and if they're right, Office Depot will likely have a tough time competing with its larger rival Staples.