A U.S. district court judge ruled on Tuesday that the No. 1 office supply store Staples may not merge with its smaller rival Office Depot, granting the Federal Trade Commission's request for a preliminary injunction on antitrust grounds.
Office Depot CEO Roland Smith said the companies will not appeal the court's ruling and will terminate the massive merger effective May 16.
"While we are respectful of the Court's decision to grant the FTC's request for a preliminary injunction to prevent our merger with Staples, we are disappointed by this outcome and strongly believe that a merger would have benefitted all of our customers in the long term," Smith said, in a statement.
As part of the broken deal, Staples CEO Ron Sargent noted in a statement that Staples will pay Office Depot a $250 million break-up fee and terminate its agreement to sell more than $550 million in large corporate contract business and related assets to Essendant. Sargent had said in March that the companies would likely scrap the deal if the preliminary injunction came down.
"We are extremely disappointed that the FTC's request for preliminary injunction was granted despite the fact that it failed to define the relevant market correctly, and fell woefully short of proving its case," Sargent said. "We are positioning Staples for the future by reshaping our business, while increasing our focus on mid-market customers in North America and categories beyond office supplies."
Staples will also explore strategic alternatives for its European businesses, according to a company statement.
Both companies' stocks were halted in after-hours trading. Office Depot shares had fallen about 26 percent before the halt, while Staples shares were down 10 percent.