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Economy

Office Depot history repeating itself- ODP, SPLS, OMX

February 20, 2013 by Roy Barnes in Economy, Market with 0 Comments

Northern, WI 02/20/2013 (gdpwatch) – Seventeen years down the line Office Depot Inc (NYSE:ODP) does a retake. Way back in September 1996, Office Depot was all set to seal a $3.36 billion acquisition deal with Staples, Inc (NASDAQ:SPLS). This was supposed to spell doom for the number three player Office Max and its share prices had subsequently plummeted. A faction of market experts felt that with the Office Depot and Staples merger, it would automatically be the second largest alternative for the buyer and would still stand to gain. Ironically, today -Office Depot Inc (NYSE:ODP) is all set to join forces with OfficeMax Incorporated (NYSE:OMX) in a bid to challenge the supreme hold that Staples has over the office supplies market.

Traditional market logic

The large-scale market belief is that fewer players in a particular market will lead to inflated prices. This logic was supposed to hold true for office superstores just as it did for any other market. A small e.g. with reference this was a survey conducted by an active citizens group- they found that the price of a box of Fax paper was $7 less where both Office Depot and Staples competed with each other against those markets where either has a monopoly. The Federal Trade Commission (FTC) seemed swayed by arguments such as these, intervened and issued an injunction against this merger less than a year after it was announced.

Scramble tactics

In a last minute salvage attempt, Staples and Office Depot put forth an offer to sell 63 of its stores to Office Max in those cities that did not have any office supply superstore to rival it. SEC squashed this attempt and the deal had to be scrapped. An FTC director stood by its decision to sue and averred that the competition problem and the resultant higher prices could not be resolved by the proposed settlement. It said that selling stores to Office Max holds no relevance in cities where there currently is competition between these three stores and the merger would still convert that to two.

The winds of change

They maintained that statistics proved that product prices were significantly lower in three store markets than two store ones. They further said that the competition would further be quelled in cities where Office Depot and Staples had planned on expanding their businesses. Apart from this, Office depot that currently operated on lowest prices would be eliminated permanently from the market. A federal judge was reported to have later agreed that FTC might have made a fundamental mistake in its decision then. Today, market watchers are trying to analyze whether the impending merger would spell gains for the American customer especially as Staples has now been permitted to sell Apple Inc (NASDAQ:AAPL) products on its American shelves. And with shares of all three office stores on the rise, no one seems to be complaining.

Shares of Office Depot Inc (NYSE:ODP) were up by 9.37% to close at $5.02

Shares of Staples, Inc (NASDAQ:SPLS) were up by 13.13% to close at $14.65

OfficeMax Incorporated (NYSE:OMX) were up by 20.93% to close at $13

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About Roy Barnes

Roy Barnes has worked as a New York Times journalist who reports internationally in video and print. His social and economical state coverage has won awards from the Overseas Press Club, Concentra, SAJA and was nominated for The Livingston Award. He covered the Asian Tsunami, investigated Hugo Chavez's land wars, reported on Russia’s anti-American youth movements. Before joining The GDP Watch, Financial Group Media and The NY Times, Barnes worked as a freelance print reporter, his career began as a Pulliam Fellow at the Indianapolis Star.

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