FTC Argues Judge Must Bar Staples Merger

The government raised the stakes on a high-profile antitrust case Sunday, arguing a federal judge must prevent the $4-billion merger of Staples Inc. and Office Depot Inc. because it cannot be undone later, no matter what courts finally rule.

U.S. District Judge Thomas Hogan will decide this month whether to grant the Federal Trade Commission a preliminary injunction barring the merger. It would last until courts finish their work on the case, which could take a year or longer.

The two sides exchanged briefs over the weekend, following five days of court testimony last month, and will file them with Hogan today.

The FTC argues that if the two office superstore chains combine they will raise prices to consumers. And even if the government can prove that in court later, it will be too late.

The office superstores said there is no reason to halt the merger now. Staples and Office Depot said the judge must keep in mind “that the denial of a preliminary injunction in no way precludes the agency from pursuing its challenge to a merger in full-blown administrative hearings.”

Lawyers for the two chains have said it would be easy to separate the chains later if court decisions go against them. The government disagreed.

“Re-creating a second, independent competitive organization a year or more after the eggs have been scrambled would be difficult, if not impossible,” the FTC argued.

Staples President Tom Stemberg said recently that if the judge rules for the two chains, they plan to merge immediately, shutting down Office Depot’s Florida headquarters and combining it with Staples’ executive offices near Boston. The FTC said that will cause problems.

“The proposed merger would effectively dismantle the infrastructure--including the distribution system--that makes Office Depot a vibrant, dynamic competitor of Staples, as well as cause the closing and sale of many of those stores where competition between the two firms is now most intense,” the FTC said.

Once the judge rules, the next step will be a months-long trial before an FTC administrative law judge.

Stemberg said the two chains have spent $12 million on legal fees and will abandon the merger if they are not permitted to combine now. If the judge rules against Staples and Office Depot, they argued, “a preliminary injunction is likely to ‘spell the doom’ of a challenged transaction.”

The FTC protested that reasoning, arguing the office superstore chains “should not be allowed to hijack the statutory standard that governs this proceeding by placing a gun to their own heads.”

The court cannot protect the interests of the companies’ shareholders above all, the FTC argued, because antitrust law requires that consumer interests come first.

The FTC also took a swipe at arbitragers who purchased shares for short-term gains if the merger is consummated, noting they were “speculating on the transaction. A windfall gain for speculators should not override the public interest.”