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Staples-Office Depot merger? Why?

September 3, 2014: 12:56 PM ET
Online shopping is here to stay. A Staples and Office Depot deal won't end the threat from Amazon.

Online shopping is here to stay. A Staples and Office Depot deal won't end the threat from Amazon.

The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.

There is a famous saying about two wrongs not making a right. But what about three wrongs?

Shares of troubled office supply superstore Staples (SPLS) surged more than 8% Tuesday and were up again Wednesday. Why? A Credit Suisse analyst suggested that Staples should buy struggling rival Office Depot (ODP), which was formed from the merger of Office Depot and fellow also-ran OfficeMax.

Really? I'm not sure that combining all the office supply stores into one will create a new giant that can go toe-to-toe with Amazon (AMZN) and other Internet retailers that have been slowly eroding the customer bases of these brick-and-mortar stalwarts.

Related: Amazon is eating Best Buy's lunch

Staples and Office Depot are much like Best Buy (BBY), RadioShack (RSH) and other specialty retailers that are having a difficult time competing against Amazon. Discounters like Wal-Mart (WMT) are squeezing the big office chains too.

That great run for stocks during the past five years everyone is talking about? Staples and Office Depot have missed it. That's sad.

So investors may want to think twice before buying Staples and Office Depot on merger hopes. It's also worth remembering that we've been here before.

Staples and Office Depot agreed to merge back in 1996. That deal never happened because the Federal Trade Commission blocked it in 1997 on antitrust grounds.

Now I completely understand that much has changed in the world of retail in the past two decades. Amazon was just a two-year old, privately-held upstart back in 1996.

But a merger of Staples and a combined Office Depot/OfficeMax still might face a tough time getting past regulators -- even if both companies pledge to close or sell tons of stores.

A leveraged buyout of Staples, which has been rumored for some time, might make more sense. Private equity has shown an appetite for poorly performing retailers that have a well-known brand name.

Cerberus, which already owns Albertson's, is buying fellow supermarket chain Safeway (SWY). Heck, Mitt Romney's Bain Capital invested in Staples back in the mid-1980s.

But anyone thinking that Staples and Office Depot will merge might want to reconsider. Doing a deal will take a lot more work than just hitting the Easy Button and conjuring up the Ink Fairy like in those old Staples TV commercials.

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