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Why a Judge Decided Office Depot and Staples Can't Merge

By Motley Fool Staff - May 24, 2016 at 12:00PM

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Staples and Office Depot won’t be joining arms anytime soon -- here's why we’re so surprised.

Last week, the proposed merger between Staples (SPLS) and Office Depot (ODP 0.36%) was prevented by a federal judge.

That ended the long saga in which the two biggest retail office-supply brands tried to become one company. As soon as the decision was announced, the two potential partners decided to stop fighting the Federal Trade Commission and backed away from the deal. That leaves big questions for both, as well as concerns as to whether the judge made the right decision.

In this segment from the Motley Fool Money radio show, Chris Hill and Ron Gross talk about the reasoning behind the injunction, and why they're so surprised the merger was shot down this firmly.

A full transcript follows the video.

This podcast was recorded on May 13, 2016. 

Chris Hill: This week, a federal judge issued an injunction preventing the merger of Staples and Office Depot, and the two companies called it quits. Help me out here, Ron: This is not ExxonMobil trying to merge with Chevron; this is two relatively small companies.

Ron Gross: I honestly wasn't expecting this outcome. I figured that would be kind of a tough road, but not ending in a breakup of the deal. The concern by the FTC is the merger would lead to higher prices for large corporations that buy office supplies in bulk. So, they're not concerned about the everyday consumer. They're concerned about the large corporations. How nice of them.

Hill: Thank God someone's looking out for the big companies!

Gross: Now, obviously, the counter is Amazon (AMZN 3.15%), and regional local suppliers provide enough competition in this marketplace that that shouldn't be a problem. Amazon's business-to-business website has more than $1 billion in sales at this point, and it is a relatively new business. I'm sure it will grow at relatively quick growth rates going forward.

So, I was surprised. I felt there was enough competition here to get this done. Those two companies as stand-alone entities really were not getting it done very well. They have to shrink their businesses now, they have to cut costs, close stores -- so all in all, a surprise to me.

Hill: If you want to win a bar bet this weekend, the top three online businesses in America in term of sales? No. 1, Amazon. No. 2, Apple. No. 3 is Staples.

Gross: Interesting.

Hill: Despite their relative size, they are selling a lot of stuff online.

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Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$109.56 (3.15%) $3.35
The ODP Corporation Stock Quote
The ODP Corporation
ODP
$30.35 (0.36%) $0.11
Staples, Inc. Stock Quote
Staples, Inc.
SPLS

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