Staples’ CEO Ron Sargent took the Federal Trade Commission to task during Staples’ fourth-quarter conference call Friday, but also said the company “remains open to settlement with the FTC.”
He said the FTC is taking “an incredibly narrow” definition of Staples’ office-supply business in its challenge to Staples’ acquisition of Office Depot, Sargent said.
“Our commitment to the acquisition hasn’t changed. Our top priority is to get the deal done,” Sargent told analysts about the $6.3 billion acquisition of Boca Raton-headquartered Office Depot, now the focus of a lawsuit in U.S. District Court in Washington, D.C.
Court arguments in the trial begin March 21, with the judge’s decision on a preliminary injunction to stop the merger from proceeding expected as early as May 10.
In a court memo supporting its request for a preliminary injunction, the FTC says the proposed merger would “eliminate” competition for buyers of bulk office supplies who rely on the bidding process between Staples and Office Depot to get lower prices.
If a preliminary injunction is granted, “the acquisition of Office Depot is over for our purposes,” Sargent said.
But he said he expects a “fair” review by U.S. District Court Judge Emmet G. Sullivan.
Sargent said while the FTC says the acquisition will increase prices for commercial contract customers, “we in fact have committed to lower prices for all customers.”
He said the commercial contract business — bulk buys of office supplies — represents only “a tiny portion” of its overall business.
The FTC decision to reject the merger shows “a deep misunderstanding of the competitive landscape,” Sargent said. “There are stronger and new competitors in the digital economy,” he said, referencing Amazon and big-box retailers.
He said the FTC has rejected Staples’ proposed divestiture of up to $1.25 billion in commercial contracts, which includes its February agreement to sell $550 million in contracts to Illinois wholesaler Essendant. Staples also has agreed with the European Commission to divest certain assets of Office Depot’s operations in Europe.
Sargent said that divestiture, a condition of approval by the European regulatory authority, will allow Staples to better focus on its North American business if the acquisition is cleared in the U.S. and Canada. The Canadian Bureau of Competition also is challenging the merger.
The European divestiture of Office Depot assets “makes it a little easier for us,” Sargent said.
During the conference call, Staples Chief Financial Officer Christine Komola revealed that Staples cut 1,000 jobs during the company’s restructuring during the fourth quarter. Staples also closed 73 stores in 2015, and plans to close 50 in 2016, for a total of 300 since 2014, she said.
Staples reported a 7 percent decrease in fourth-quarter sales to $5.3 billion, compared to the same quarter in 2014. For the year, sales were down 6.4 percent. The Framingham, Mass.-based company was profitable in 2015, though net income decreased 64 percent.
Sargent said Staples will increase its focus on categories other than office supplies, including breakroom supplies and mail and shipping supplies and services, in 2016.
“We’ve positioned Staples to survive whether as a stand-alone company or hopefully combined with Office Depot,” he said.