By C. Ryan Barber, From The National Law Journal
In her defense of Staples Inc.’s proposed $6.3 billion acqusition of Office Depot Inc., Diane Sullivan described Amazon.com Inc. as a rising behemoth poised to revolutionize the market for office supply sales to large corporate customers.
But U.S. District Judge Emmet Sullivan didn’t buy the trial attorney’s bullish view, according to the opinion released Tuesday that lays out his reasons for blocking the deal.
Describing the task of assessing Amazon Business’ ability to replace Office Depot within three years as “less than enviable,” Judge Sullivan noted that the new competitor lacks experience in pursuing contracts and has yet to win a bid to be a large corporate customer’s primary vendor.
“Although Amazon Business may successfully address some of these alleged weaknesses in the short term, the evidence produced during the evidentiary hearing does not support the conclusion that Amazon Business will be in a position to restore competition lost by the proposed merger within three years,” the judge wrote in his 75-page ruling.
Judge Sullivan noted that Amazon Business may eventually “transform how some businesses purchase office supplies. But he found that the evidence presented by Staples and Office Depot fell short of showing that Amazon Business would fill the void in the business-to-business market in a “timely and sufficient manner.”
The release of the opinion offered the first public glimpse into Sullivan’s reasons for granting a preliminary injunction last week. Staples and Office Depot called off the deal after Sullivan issued his order on May 10.
The Federal Trade Commission sued in December to block Staples’ proposed acquisition of Office Depot. The agency argued that the combination of the two largest office supply chains would hurt competition in the market for sales of pens, notepads, paper clips and other office supplies to large corporate customers.
Diane Sullivan, a litigation partner at Weil, Gotshal & Manges, warned that Staples and Office Depot would go the way of Blockbuster and Hollywood Video without the merger. She compared the office supply chains to “penguins on a melting iceberg.”
The FTC left out ink and toner in the agency’s definition of market, arguing that the competitive conditions for those products were considerably different than those for pens, notepad and paper clips, among other consumer office supplies. Diane Sullivan argued that the FTC had crafted a “made for litigation market” by leaving out ink and toner. The FTC, she said, had “ginned up” Staples and Office market share in hopes of scoring an antitrust victory, she argued.
In the opinion released Tuesday, Judge Sullivan said Staples and Office Depot did not “address the critical question that must be answered when determining whether a particular product should be included in a cluster market: are the items subject to the same competitive conditions?”
The judge noted that several bulk purchasers buy their ink and toner directly from companies such as Canon and Xerox. There is “ample evidence,” Sullivan wrote, showing that ink and toner were properly excluded from the market definition.
Diane Sullivan, who is not related to the judge, had argued that the FTC included ink and toner in the market definition when it successfully challenged Staples and Office Depot’s attempt to merge in 1997. In the opinion, Judge Sullivan wrote that “scant precedential value can be gleaned” from comparing the two market definitions.
”The 1997 case is nearly twenty years old, and the office supply market has changed dramatically since that time,” the judge wrote.
Judge Emmet Sullivan’s ruling in FTC v. Staples is posted at weblink below.
IMAGE:
U.S. District Judge Emmet Sullivan ruled for the FTC in blocking the merger of office supply rivals Staples and Office Depot.
Photo by Diego M. Radzinschi/THE NATIONAL LAW JOURNAL
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