Why more big mergers are getting shot down

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It's getting harder for big companies to combine these days. Just ask Staples (SPLS) and Office Depot (ODP). Federal regulators are taking a tough stance on some deals for a variety of reasons, including a massive increase in the number of them corporations are proposing. In fiscal 2015, mergers valued at more than $10 billion hit 67, more than double 2014's volume. There were 280 transactions valued at more than $1 billion last year, nearly double the number in 2010.

"We have had 25 years of pretty lax antitrust enforcement," said Diana Moss, the head of the American Antitrust Institute, a think tank. "We've gotten to the point in many markets where they're so highly concentrated that any merger is going to raise red flags."

Eight mergers were abandoned in 2015 after the U.S. Department of Justice objected to them, the most since 2012, according to the department's data. Already this year, three deals have been abandoned for that reason.

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During 2015, the Federal Trade Commission challenged 27 mergers it considered to be anticompetitive, and it entered into 18 consent decrees requiring divestitures to secure approval for big mergers. Three deals were abandoned in the course of the FTC's investigation. An agency spokeswoman said data for 2016 isn't yet available.

In the case of Staples and Office Depot, a federal judge rejected the companies' argument that Amazon (AMZN) and regional chains would ensure that the market for supplying pens and other supplies to large businesses would remain competitive. According to The Wall Street Journal, Amazon sells more than $1 billion annually in office supplies and other products on its new business-to-business website. However, Staples and Office Depot combined sold more than $35 billion in the year ending in January.

In a statement, Staples CEO Rod Sargent said he was "extremely disappointed" by the court's decision and announced plans to overhaul the retailer, including a potential sale of its European operations. His counterpart at Office Depot, Roland Smith, plans to unveil his company's "go-forward" strategy at a May 16 conference call with investors. Both companies have closed stores in recent years to save costs.

Staples will pay Office Depot a $250 million breakup fee because the transaction was called off.

The companies' shares fell on the news of the scuttled deal. Seema Shaw, a retail analyst with Bloomberg Intelligence, told the news service that both Staples and Office Deport will be in a poor position competitively as stand-alone companies.

The lessons learned from their failed deal, though, will reverberate across Corporate America. "It sends a signal that you got to take seriously the risk of a government action," said George Hay, a professor at Cornell Law School. "You had better decide if the rewards are worth the risks."

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