ELUXY AB Electrolux (PK)

By Brent Kendall in Washington and Drew FitzGerald and Ted Mann in New York 

From kitchen stoves to paper clips, U.S. antitrust enforcers are putting the brakes on a series of corporate deals that have tested the government's willingness to let longtime rivals combine two big businesses.

On Monday, the Federal Trade Commission filed a lawsuit to block Staples Inc.'s roughly $6 billion takeover of Office Depot Inc., a deal that would create an office supplier with nearly $40 billion in annual sales.

The lawsuit alleged the combination would mean higher prices for companies that buy office supplies in bulk. Staples and Office Depot said they would contest the suit, but shares of both companies tumbled.

The FTC's unanimous decision came the same day that General Electric Co. abandoned a $3.3 billion agreement to sell its appliances business to Electrolux AB of Sweden. GE walked away from the deal, which it struck 15 months ago, in the middle of a courtroom fight with the U.S. Department of Justice.

Once again, government lawyers argued the combination would reduce competition and raise prices. Shares of Electrolux, whose CEO had testified the deal was "absolutely critical" to its business, lost 15% of their value, while GE shares slipped less than 1%.

Both transactions would have left bigger companies atop industries that have been consolidating for years. Adding Office Depot, which merged with OfficeMax in 2013, would leave Staples with 70% of the market for pens, pads and office essentials that large businesses buy directly, according to the FTC. Combining GE and Electrolux would have created a merged firm that sold two of every three cooking ranges in the U.S., government lawyers said.

"Each horizontal merger raises concentration. And when market concentration goes up, the likelihood that the next merger will be challenged goes up as well," said University of Iowa law professor Herbert Hovenkamp. "The government has been on a decent roll in merger cases the last couple of years. These are both good examples of that."

Cheap debt and a slow-growth economy has helped fuel a record year for mergers and acquisitions--with $4.35 trillion in global volume and $2.12 trillion in U.S. deals, according to Dealogic. But it has also been a banner year for transactions that have fallen at the hands of antitrust police appointed by President Barack Obama.

Antitrust objections by the Justice Department earlier this year helped derail Comcast Corp.'s $45 billion bid for Time Warner Cable Inc. The FTC won a court fight in June that blocked the $3.5 billion combination of food-distribution rivals Sysco Corp. and US Foods Inc. Last week, two leading tuna producers--the owners of Bumble Bee and Chicken of the Sea brands-- called off a $1.5 billion merger in light of U.S. concerns.

The agencies this year have sought to stop deals in an array of other markets, including movie advertising networks, hospitals and the semiconductor industry. So far this year, Dealogic says companies have abandoned 77 deals worth $263 billion, though that tally includes many deals withdrawn for nonregulatory reasons.

All four current FTC commissioners, three Democrats and a Republican, voted in favor of the Staples lawsuit. Market expansion or new entry by other office-supply vendors wouldn't be timely, likely or sufficient to counter the anticompetitive effects of the merger, the FTC said. Shares of Office Depot fell 16% Monday, while Staples lost 14%.

The companies said the decision was "based on a flawed analysis and misunderstanding of the intense competitive landscape." The lawsuit marks the second time the FTC has intervened to prevent the two companies from combining. The commission in 1997 won a ruling from a federal judge that blocked a Staples-Office Depot merger.

Both companies argued the industry has evolved over the past two decades, including through growing competition from the Internet and big-box retailers. The FTC acknowledged this evolution when it allowed Office Depot to merge with OfficeMax.

"The FTC now contradicts its prior ruling, even though competition has materially intensified in the two years since the commission declared this market highly competitive," the companies wrote in a letter to clients. "This contradiction is not only unfair; it flies in the face of marketplace realities."

The FTC said business-to-business market is distinct from the more competitive retail markets for office supplies sold to consumers.

The companies had sought to ease FTC concerns by offering to shed hundreds of millions of dollars in corporate contracts. FTC staffers weren't enthusiastic about the divestiture offer, and the companies in recent days had offered larger concessions, according to people familiar with the matter.

Both Staples and Electrolux asked the government to take a broader view of markets and give credit to newer, smaller competitors.

The GE transaction was in jeopardy since the summer, when the Justice Department filed a lawsuit to block it.

"This deal was bad for the millions of consumers who buy cooking appliances every year. Electrolux and General Electric could not overcome that reality at trial," Justice Department lawyer David Gelfand said Monday.

The companies pointed to the Bush Justice Department's decision in 2006 to allow Whirlpool Corp. to acquire rival Maytag Corp.

Top executives from Electrolux and GE had testified during the trial, which began in early November. Though the court handling the case had yet to render a verdict, GE used its right to terminate the sale after 15 months of talks, which was its first opportunity to walk away from the transaction and collect a breakup fee.

GE said Monday it is entitled to a $175 million breakup fee. Electrolux, though, said it was reviewing the terms of the fee.

"The appliances business is performing well and GE will continue to run the business while it pursues a sale," GE said. The deal's failure is a setback to the company's effort to focus on high-tech industrial industries but GE has been confident it could find another buyer if the Electrolux deal fell through, according to people familiar with the company's thinking.

Electrolux had hoped to create an appliances seller capable of competing with the behemoth of Whirlpool and rising Asian competitors. "We are disappointed but we are certainly not defeated," Electrolux CEO Keith McLoughlin said during a conference call.

The merged Electrolux-GE business would have had about one-quarter of the U.S. market last year, compared with roughly 30% for Whirlpool, and 12% and 13%, respectively, for South Korean rivals LG Corp. and Samsung Electronics Co., according to data from TraQline.

Jens Hansegard contributed to this article.

Write to Brent Kendall at brent.kendall@wsj.com, Drew FitzGerald at andrew.fitzgerald@wsj.com and Ted Mann at ted.mann@wsj.com

(END) Dow Jones Newswires

December 07, 2015 20:15 ET (01:15 GMT)

AB Electrolux (PK) (USOTC:ELUXY)
Historical Stock Chart
From Oct 2024 to Nov 2024

AB Electrolux (PK) (USOTC:ELUXY)
Historical Stock Chart
From Nov 2023 to Nov 2024