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Instant Analysis: FTC Case So Weak, Staples Won't Even Mount a Defense

By Rich Duprey - Apr 8, 2016 at 6:23PM

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The office supplies retailers make a risky decision in a case with a lot riding on its outcome.

The verdict might not be so super for Staples and Office Depot if their decision not to mount a defense in the FTC's case against their merger fails. 

What happened?
Because they viewed the Federal Trade Commission's case against their merger as being so weak, both Staples (SPLS) and Office Depot (ODP -2.01%) didn't even bother mounting a defense, choosing instead to ask the judge presiding over the matter to rule in their favor after the prosecution rested.

Does it matter?
Without question, the FTC's arguments were severely undermined by the damaging testimony of an executive who testified that the regulatory agency tried to pressure the e-commerce leader into agreeing to lie about its readiness to take on the merged office supplies retailers. It was a devastating moment that likely crippled the prosecution's case, but it still seems like a risky decision to not mount a defense. You would have expected them to give the judge all the information he might need to render a verdict in their favor.

Indeed, the judge said he wasn't prepared for Staples and Office Depot to not argue their position, and once again encouraged the two sides to try to come to an agreement before he calls them back on April 19 for additional testimony. From previous reports, the FTC has been unwilling to budge from its position that the merger should not happen because it will raise costs for the biggest businesses in the country as well as the government.

The office supplies retailers have lambasted the government's position, saying their own arguments show that 90% of Staples and Office Depot's customers would be unaffected by the merger, and the FTC is merely defending the privilege of the richest corporations against possibly having to pay higher prices.

While it may seem self-evident on its face that the FTC will lose as a result of those positions, it has a low hurdle to get over in the first place: All it was asking for is an injunction in the case while it holds an in-house trial on the matter. Moreover, by not defending themselves, Staples and Office Depot leave unchallenged the government's position they are the only two retailers from which big business buys. That could mean the government's definition of what constitutes the office supplies market is the one the judge makes his determination on.

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