No Deal

You won't be seeing Office Staples Superstores any time soon. After U.S. District Judge Thomas H. Hogan delayed the proposed merger between Staples and Office Depot so the Federal Trade Commission could rule on the deal, the two office supply retailers abandoned their plans to merge. (See "Pricing Pencils," August/September.)

Hogan said the merger would "eliminate significant future competition" and allow the new office supply behemoth to "maintain prices at an anti-competitive level."

The decision hinged on whether the two superstores compete only with other office supply superstores or with the broader market of office supply vendors. The FTC convinced Hogan that the two "category killers" compete primarily against their own kind and that new firms are unlikely to enter this market.

"No one entering Staples or Office Depot would mistakenly think he or she was in Best Buy or CompUSA," wrote Hogan, after admitting that he couldn't explain all the ways in which the superstores were unique. "You certainly know an office superstore when you see one."

After acknowledging that "the defendants are being punished for their own successes and for the benefits they have brought to consumers," Hogan emphasized that his ruling was specific to this case and should not be seen as setting a precedent against superstore mergers. Still, FTC watchers predict it will have a dampening effect on future deals.

"This basically means that if you're out there advertised as a category killer in a particular industry, you can't go out and buy another superstore in the same field," Tom Burnett of Merger Insight told The Washington Post. "CompUSA isn't going to be buying Radio Shack any time soon, for instance."