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On January 28, the US Federal Trade Commission (FTC) announced
that it had accepted a proposed settlement with office supply
distributors Staples and Essendant in connection with Staples'
proposed $482.7 million acquisition of Essendant. The settlement
suggests that the FTC is currently more willing than the US
Department of Justice (DOJ) to accept conduct remedies to resolve
competitive issues raised by vertical mergers.
WHAT HAPPENED:
The FTC Commissioners voted 3-2 to accept a proposed settlement
establishing a firewall to prevent Staples from receiving
competitively sensitive customer information from Essendant.
Staples is the largest reseller of office products in the US,
and one of only two retail office supply superstores in the US.
Essendant is one of only two nationwide office product wholesale
distributors. In September 2018, Staples agreed to acquire
Essendant.
Staples competes with various resellers to sell office supplies
to mid-sized companies. Many of those resellers rely on Essendant
as their wholesale distributor. In that role, resellers have to
provide Essendant with detailed information about their end
customers' identities, purchasing history, product preferences
and similar data.
The FTC alleged in its complaint that the transaction was
likely to harm competition by giving Staples access to the
commercially sensitive information (CSI) of Essendant's
resellers and those resellers' end customers. The FTC contended
that access to that information could allow Staples to offer higher
prices than it otherwise would when bidding against a reseller for
an end customer's business.
To address this competitive concern, the FTC imposed a conduct
remedy. Specifically, the FTC required the parties to establish a
firewall limiting Staples' access to the CSI of Essendant's
resellers and the end customers of those resellers.
Two FTC Commissioners issued dissenting statements, arguing
that the settlement does not fully remedy the transaction's
likely anticompetitive effects. In the dissenters' view, the
evidence suggests that the integrated firm could implement a
strategy of raising costs for Staples' reseller rivals.
WHAT THIS MEANS:
The settlement indicates that the FTC remains willing to cure
competitive issues raised by vertical mergers with conduct
remedies, such as firewalls, instead of imposing a divestiture or
seeking to block the deal.
Under Makan Delrahim's leadership, the DOJ's Antitrust
Division has been less receptive of conduct remedies, even in
vertical merger cases. Delrahim has stated that conduct remedies
are fundamentally regulatory and are inconsistent with the
DOJ's role as a law enforcement agency.
The DOJ refused to accept conduct remedies to resolve the
competitive issues arising from AT&T's acquisition of Time
Warner. DOJ challenged the transaction in federal court. In June
2018, a DC district court judge ruled against the DOJ, and the case
is currently on appeal to the DC Circuit.
One of the FTC Commissioners, Rebecca Kelly Slaughter, argued
in her dissenting statement that the FTC should be more willing to
challenge, and seek to block vertical mergers when it identifies
competitive concerns. That position is more aligned with the
DOJ's currently stated policy, but overall the FTC appears more
willing to accept conduct remedies than the DOJ.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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