Staples merger with Grand & Toy owner Office Depot rejected by Canadian, U.S. regulators

Canada's competition regulator is moving to block the proposed merger between the country's two biggest office-supply companies, Staples and Grand & Toy, citing concerns that the combined business would have a stranglehold on the $500-million-a-year market for corporate purchases of pencils, highlighters, sticky notes and paper.

The Competition Bureau made the announcement Monday in conjunction with the U.S. Federal Trade Commission, which is seeking to block the deal south of the border.

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"If the acquisition were to proceed, Staples would account for over 80 per cent of sales of various office products to affected customers in Canada, including supplies such as pens, pencils, highlighters, staples, sticky notes and paper," the bureau said in a statement.

The result would likely be "substantially" less competition, driving up prices paid by for-profit and not-for-profit businesses, as well as government, health care entities and schools, the statement said.

Staples Canada is a subsidiary of Massachusetts-based Staples Inc., while Grand & Toy is the Canadian operating arm for U.S.-based Office Depot.

Both parent companies said Monday that they will challenge the competition regulators' decision and will show it was based on "a flawed analysis and misunderstanding" of the competitive landscape the companies deal with. The companies said they face stiff competition from manufacturers who sell their own products, Internet sellers, big box stores and others.

Staples announced in February that it was buying Office Depot for $6.3 billion US as part of a plan to join forces to compete against big box stores and online rivals.

The U.S. FTC stopped a merger attempt between the same two companies in 1997. But in the past 19 years, Amazon and other online sellers, which deliver to almost anywhere in the U.S. and Canada, have exploded onto the scene, while megastores such as Costco and Wal-Mart have  further crowded the market.