European Commission approves Staples' acquisition of Office Depot, subject to conditions
OREANDA-NEWS. Following an in-depth review, the European Commission has approved under the EU Merger Regulation the acquisition of office supplies distributor Office Depot by Staples, subject to conditions.
Following an in-depth review, the Commission has approved under the EU Merger Regulation the acquisition of office supplies distributor Office Depot by Staples, subject to the divestment of Office Depot's contract distribution business in Europe and entire business in Sweden.
Commissioner Margrethe Vestager, in charge of competition policy, said: "The substantial remedies package offered will ensure that effective competition is maintained, in particular on the EU's international office supplies market. This will allow European companies to continue to benefit from the Single Market by procuring their office supplies internationally and to reduce costs."
The Commission's investigation
Staples and Office Depot, both of the US, supply office products such as stationery, paper and printer supplies (e.g. toner and ink cartridges) in several European countries. Office products are marketed through a number of sales channels such as wholesale, contract sales and online sales.
The Commission's investigation focused on the effects of the transaction in the international contract sales channel as well as in the national contract sales channel in the Netherlands and Sweden.
Customers in the contract sales channel typically purchase their office supplies by entering into a framework contract with a contract stationer following a tender.
International contract sales
The investigation showed that only Staples, Office Depot and Lyreco are capable of entering into international supply contracts for large business customers in Europe, since they are present in several countries and can fulfil international orders. Customers do not consider switching to several national contracts as a sufficiently attractive alternative because of the lower prices achieved under international contracts and the savings in administrative costs. Moreover, the competition from specialist suppliers, such as companies supplying only printer cartridges, is limited as they offer a smaller product range and typically cannot provide the same services as those offered by contract stationers.
The Commission also found that barriers to enter the contract market are high due to the specific requirements of large contract customers who purchase under tenders. In particular, suppliers must be able to offer a large range of office products at competitive prices in a number of countries. Therefore, new competitors in this market would need to set up operations in many countries or enter into an international alliance with companies active in other countries.
The investigation also showed that online commerce companies, such as Amazon, cannot currently be considered as competitors in the contract business market in Europe since they only sell office products through the online sales channel.
The merger, as notified, would therefore have critically reduced competition in the already concentrated market for international contracts for office supplies. The Commission came to the same conclusions whether assessing the distribution of traditional office supplies as a whole or the distribution of stationery only.
National contract sales and wholesale
The Commission also found that the transaction would have reduced competition in the markets for national contracts with large business customers in the Netherlands and Sweden, as well as in the wholesale supply of office products in Sweden. These were found to be particularly concentrated markets where few alternative suppliers are active.
The transaction was notified to the Commission on 21 August 2015. The Commission opened an in-depth investigation on 25 September 2015.
To address the Commission's concerns the companies offered to divest:
- the whole of Office Depot's contract distribution business in the European Economic Area (EEA) and Switzerland to address both the competition concerns in international contract sales, as well as in national contract sales in Sweden and the Netherlands;
- Office Depot's entire business operations in Sweden to also address the competition concerns in the Swedish wholesale market for the supply of office products.
The Commission concluded that the commitments remove the entire overlap between the merging companies in all markets where concerns were raised, thus ensuring that an important alternative will remain available on these highly concentrated markets.
Staples can only implement the acquisition of Office Depot once the Commission has assessed and approved the divestiture to a suitable purchaser.
Review in other jurisdictions
Throughout its investigation, the Commission has cooperated closely with the Canadian Competition Bureau and the US Federal Trade Commission. On 7 December 2015, both authorities announced they would challenge the merger.
The markets analysed by the Commission are separate from those under scrutiny in the US and Canada and the competitive conditions differ, in particular in terms of strength and number of competitors. The Commission's conditional clearance has no bearing on the ongoing regulatory process in other jurisdictions.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or a substantial part of it.