Justice Dept. Should Steer Clear of Office Depot Merger
I'd be a bit surprised if the Department of Justice puts up a stink with this deal for a couple of reasons. First, the playing field has changed in recent years with the explosion of online retailing, and it's much more difficult now for the DOJ to make the argument that a merger of two office retailers will reduce competition. Second, the decision to block the Staples-Office Depot merger back in 1997 was just plain embarrassing, and may go down as one of the more ridiculous antitrust moves in recent history.
I do wonder, however, whether the DOJ's interest in the merger will be piqued due to the belief that it may result in the closing of up to 600 stores, in areas where Office Depot and Office Max stores are in close proximity to one another. That might benefit Staples, the number one name in the space, whose shares jumped 13% yesterday on the news of the merger. In fact, Staples had a bigger day than Office Depot, which was up 9%, while Office Max shares jumped 21%. I wonder whether the DOJ took notice of that?
SPLS data by YCharts
Of course, the DOJ has had some bigger fish in recent days, for one, making sure that Americans aren't paying too much for beer given Anheuser-Busch InBev 's (BUD) proposed acquisition of the 50% of Grupo Modelo (GPMCY) , brewer of Corona, which it does not already own. Last week, AB InBev gave up that fight, changing the deal in order to comply with antitrust laws, and will sell the rights to Corona, along with other Grupo Modelo brands to wine name Constellation Brands (STZ) for a reported $2.9 billion. Game over; DOJ victory, and beer drinkers can now rest easy.
STZ data by YCharts
Frankly, I'm also a bit surprised that more has not been made of the US Airways (LCC) -American Airlines merger, which is expected by many to sail through a DOJ antitrust review. While there's not a great deal of overlap between the routes that these airlines fly, the merger will result in the world's largest carrier, in an industry that is extremely capital intensive, in which barriers to entry are huge. While the merger makes sense, and should be allowed to move forward, in my opinion, there are some potential ironies. The DOJ blocked a beer company merger, in order to protect Americans from the possibility of paying higher beer prices, but is likely to let an airline merger, seen by some as creating a decrease in competition, proceed.