Failed Sysco/US Foods Merger Puts Staples/Office Depot Deal In ‘Serious Jeopardy,’ Says American Postal Workers Union
07/07/2015 - WASHINGTON - The collapse of a planned merger between Sysco and US Foods puts a similar merger of office-supply giants Staples and Office Depot in serious jeopardy, says the American Postal Workers Union (APWU).
“The Federal Trade Commission made a very strong case against the Sysco/US Foods merger,” said APWU President Mark Dimondstein. “Swap out the words ‘food service distribution’ and replace them with ‘office-supply distribution’ and you have a description of the Staples/Office Depot deal. The same arguments prevail.”
Sysco abandoned its merger plans after a federal judge granted an injunction requested by the FTC, and will now pay more than $300 million to exit the deal.
“It’s clear that Staples and Office Depot is now in serious jeopardy,” said Dimondstein. “Both companies should cut their losses and get out of this bad deal sooner rather than later. Right now, they are wasting time and money trying to create an illegal monopoly that will reduce choices and raise prices for consumers, businesses and governments.”
On June 23, U.S. District Court Judge Amit Mehta upheld the FTC’s request for an injunction to block the merger of Sysco and US Foods, which are the two largest suppliers of food and supplies to U.S. restaurants, hospitals, schools and other customers.
An analysis of Judge Mehta’s decision in FTC v. Sysco Corp., carried out by APWU’s attorneys, shows striking similarities between the failed merger of two food-service giants and the proposed merger of Staples and Office Depot.
- Judge Mehta summarized his decision by citing a previous case about a merger of organic supermarkets:
"[T]here can be little doubt that the acquisition of the second largest firm in the market by the largest firm in the market will tend to harm competition in that market.”
The same sentence could have been written about Staples, the largest firm in the office-supply superstore market, and Office Depot, the second largest firm.
- In attempting to defend its failed merger proposal, Sysco used many of the same defenses Staples has raised in support of its planned merger with Office Depot. For example, Sysco argued that there are many types of food-service distributors and, therefore, many markets with various competitors. But Judge Mehta ruled in favor of the FTC, holding that the relevant market had to be defined more narrowly, by distinct customer needs.
Customers who need one-stop shopping and immediate delivery cannot be grouped together with those served by different forms of distribution. This differentiates Internet retailers from brick-and-mortar office-supply stores.
- A compelling similarity between the Sysco-US Foods and Staples-Office Depot mergers is that both would result in a single broad line supply chain for national customers. National customers – including Fortune 500 companies and local, state and federal units of government – negotiate long-term supply contracts with Staples and Office Depot.
Internet retailers and regional suppliers do not compete in this large business-to-business (B2B) and business-to-government (B2G) market. Therefore, a merger of Staples and Office Depot would leave just one company as the only source of large-scale office-supply contracts – the very definition of a monopoly that U.S. anti-trust laws are intended to prevent.
The FTC is currently reviewing the proposed Staples and Office Depot merger and has requested additional information from both companies.
The APWU has opposed the merger due to the negative impact of reduced choice and higher prices on union members, other consumers and U.S. businesses and governments.
- In May, the union released “No Sale: Why the Staples Office/Depot Merger Should Be Blocked.”
- In June, union representatives met with the FTC to discuss key findings of the report.
- On June 12, APWU representatives attended the Office Depot shareholders meeting and briefed South Florida media about its concerns about the proposed merger.
# # #
The American Postal Workers Union represents 200,000 employees of the United States Postal Service, and is affiliated with the AFL-CIO. For more information on the APWU, visit www.apwu.org