The US Federal Trade Commission recently decided to block the $6.3 billion merger between Office Depot and Staples. As part of its due diligence work, the antitrust body hired Charles River Associates to analyse the consequences on competition – the firm’s analysis was instrumental in the court ruling against the merger, on the grounds that the entity would be anti-competitive and harm customers.
Office Depot recently found itself in some strife, as a number of forces within the office supply space have placed various pressures on its business model. Last year one of its main competitors, Staples, sought to buy the company for $6.3 billion. The merger was challenged by the Federal Trade Commission (FTC), on concerns that it would significantly reduce competition nationwide in the market for consumable office supplies sold to large business customers.
The FTC, in developing its case against the merger, stepped to Charles River Associates (CRA) – an independent consulting firm that provided antitrust and competition economics analysis of the merger situation. The firm used a variety of techniques to determine the consequences of the merger on the competitiveness of the market, including the 2010 Horizontal Merger Guidelines and product level data obtained from both a sample of Fortune 100 customers and a sample of competitors. The analysis determined the combined market share, and level of concentration within the relevant markets, was well above the level that indicates the merged result to be anticompetitive.
The research further considers the current competition between the two parties, finding that current competition has resulted in customers benefiting from significant leverage in price negotiations, and that remaining competitors were unlikely to replicate this degree of competition. The firm’s analysis, as was reflected in the ruling, is said to be instrumental to the case put forward by the FTC. Carl Shapiro, a Senior Consultant at CRA, testified in the case.
“This project encapsulates the ability of CRA’s antitrust economists to apply sophisticated analysis in complex questions about market competition. In his opinion, Judge Emmet G. Sullivan cited Professor Shapiro numerous times and adopted Professor Shapiro’s testimony on all critical antitrust issues in the case including market definition and market shares,” says Paul Maleh, CRA's President and Chief Executive Officer.
Following the failure of the merger, Office Depot called in Bain & Company to charter a strategic path forward, as the company finds itself in a position of relative distress having lost around 40% of its share value since the start of the year. Bain & Company is assisting with a comprehensive strategic review of the firm’s business in order for it to remain competitive within the changing business environment.