A federal judge on Tuesday blocked the planned merger of rivals Staples Inc. (NASDAQ: SPLS) and Office Depot Inc. (NASDAQ: ODP) because of antitrust concerns, prompting the office-supply companies to say they will abandon the roughly $6 billion deal. Shares of both companies plunged in morning trading in New York. Office Depot stock dropped 37% to $3.82, while Staples fell 19% to $8.41.
Staples CEO said he was disappointed the judge sided with the agency “despite the fact that it failed to define the relevant market correctly, and fell woefully short of proving its case.”
Staples said Tuesday it will cut another $300 million in annual costs and explore alternatives for its European operations, which include more than 200 stores. The Framingham, Mass., company will pay its smaller rival a $250 million breakup fee.
Office Depot CEO Roland Smith said the Boca Raton, Fla., retailer wouldn’t appeal. He said the two companies will end their merger agreement on Monday.
The decision was released after U.S. stock markets had closed Tuesday. Wall Street has been skeptical for most of the past year of the prospects for the combination to overcome the antitrust challenge, and Office Depot shares have been trading at a wide discount to the proposed stock-and-cash offer.
Tuesday’s loss is a considerable blow for the companies, which hoped the deal would boost their fortunes after years of sinking revenues.
Among other recent failed deals, Halliburton Co. and Baker Hughes Inc. dropped their planned merger this month in the face of a Justice Department lawsuit and concerns raised by antitrust enforcers in international jurisdictions.
Staples announced its planned acquisition of Office Depot in February 2015. The companies argued the deal would help them cut costs, stem years of decline and better position the new, merged firm to compete in the digital age.
Executives made it clear that a major force driving the transaction, worth $6.3 billion when it was announced, was the need to consolidate a pair of retailers that had grown too large for the market they served. That point was reinforced when Staples’ sales for the fiscal year ending in January declined 6.4%, to $21.1 billion. Office Depot’s sales for the same period dropped 10%, to $14.5 billion.
The companies responded by saying Amazon and regional local suppliers would keep the business-to-business office-supply market competitive. They also argued that they wouldn’t have the muscle to force powerful U.S. corporations to pay more for pens and paper clips.
Amazon last week said its relatively young business-to-business website now sells more than $1 billion a year in office supplies and other products.