The new Target store is seen in Guelph, Ontario, March 4, 2013, on the eve of its opening. The American retail giant is set to open its first three Canadian pilot stores on March 5.
The new Target store is seen in Guelph, Ontario, March 4, 2013, on the eve of its opening. The American retail giant is set to open its first three Canadian pilot stores on March 5. Reuters/Geoff Robins

The European Union regulators have initiated an anti-trust probe into the planned US$6.3 billion (AU9.3 billion) buyout of the U.S. office supplies giant Office Depot by American rival, Staples. The deal is also under the scrutiny of U.S. regulator FTC.

Staples’ announcement to buy Office Depot raised many eyebrows on the back of fears that it would create a monopoly, leaving little space for any other competitorwith one major actor trying to dominate the sector.

“We are opening in-depth investigation to make sure that the merger of two of the main suppliers of office products will not have a negative effect on competition,” said EU Competition Commissioner Margrethe Vestager.

“The Commission has concerns that the takeover could lead to price increases and less choice,” his statement added.

The EU said its initial investigation indicated that there are potential competition concerns in the market regarding supply of office products to business customers through international contracts in Europe, the EU Business reported.

It said the concerns include “several smaller players have a more limited geographic presence and not able to exercise a sufficient competitive constraint on the merged company.”

Already the big ticket deal is under the lens of the U.S anti-trust regulator Federal Trade Commission. The shares of Staples Inc. and Office Depot Inc. tumbled recently after news reports came that the U.S. will block the merger plan.

Vast retail outlet

Both Staples and Office Depot own a worldwide retail network of about 4000 outlets. The companies argue that the deal is important to strengthen their position to compete with online vendors and big-box retailers. The chains have focus on selling office stationery, computers, printers and printing supplies.

Analysts point to the rising redundancy in office supplies on the back of computerisation of data, dipping the demand for traditional office supplies alongside the challenge posed by online and volume retailers.

In the office supplies sector, consolidation has been causing the pruning of retail outlets. In 2013, Office Depot closed 400 stores in the United States. Staples also announced in 2014 that it will close 225 stores.

The EU investigator Vestager is a former Danish finance minister and is experienced in leading anti-trust probes. He has led probes against U.S. companies such as Google, Apple, Amazon and Starbucks.

Staples reply

Meanwhile, Staples issued a statement in response to the European Commission’s announcement of a Phase II review of the Office Depot acquisition.

“We continue to work cooperatively with the European Commission regarding the acquisition of Office Depot,” said Ron Sargent, Chief Executive Officer of Staples.

“The transaction would enable Staples to better serve customers around the world and to compete in a rapidly evolving global marketplace,” the CEO noted.

Noting that already regulators in Australia, New Zealand and China have granted their approval to the transaction, Sargent said Staples will continue to work with regulatory authorities in the European Union, the United States and Canada.

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