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Federal Regulators Block Staples and Office Depot Merger

A federal judge this week granted a request from trade regulators, halting a merger between office supply giants Staples and Office Depot to prevent a monopoly. This is the second time that the Federal Trade Commission has blocked consolidation of these two companies and the office suppliers announced that they will not appeal the ruling.

The blocked merger is likely to save hundreds of jobs for Staples workers in Boca Raton, Florida, reports the Florida Sun Sentinel. But not everyone responded positively to the government intervention, and stocks for both Staples and Office Depot reportedly dropped after the announcement that they are scrapping the $6 billion merger.

Regulating the Markets

Wall Street trader types like to say that the free market has a logic of its own, which ensures that supply and demand are met, that prices are fair, and that no single entity controls any industry. In order to ensure that the market's logic does not lead to monopolies, however, federal regulators review proposed mergers of industry influencers to ensure that consolidation of power will not impede competition.

In fact, the free market is highly regulated and the logic of the government is often imposed on it to protect consumers. The ruling this week explains why competition matters to regulators. The short version is that it keeps prices down. "The Court finds that ... the proposed merger will substantially impair competition in the sale and distribution of consumable office supplies to large business-to-business customers," says the ruling.

The Parties Respond

Debbie Feinstein, the Federal Trade Commission's Bureau of Competition director, reacted enthusiastically to the ruling, which she called "great news for business customers in the office-supply market." Feinstein said, "The deal would eliminate head-to-head competition between Staples and Office Depot and likely lead to higher prices and lower quality of service for large businesses that buy office supplies."

Office Depot CEO Roland Smith disagreed with Feinstein's assessment and defended the merger while admitting that he would not pursue an appeal. Smith said the company is "disappointed by this outcome and strongly believes that a merger would have benefited all of our customers in the long term."

Talk to a Lawyer

If you're in business and considering any big moves, like a merger, talk to a lawyer. Antitrust law is complex, so get guidance.

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