WASHINGTON—Failed merger partners Staples Inc. and Office Depot Inc. lost on all of the critical issues in their court battle with government antitrust enforcers, and the companies' decision not to present defense evidence appears to have hurt their case, court records released Tuesday show.

Details of a federal judge's 75-page ruling—released after confidential business information was blacked out—make clear that Judge Emmet Sullivan had little qualms in embracing the Federal Trade Commission's main contention in the case that a merged Staples-Office Depot would mean diminished competition and higher prices for large national business that buy office supplies in bulk.

The office superstores quickly abandoned their deal after the May 10 ruling.

Big corporations need specialized office-supply services that only Staples and Office Depot can provide, including sophisticated information-technology capabilities, personalized service and expedited delivery capabilities, Judge Sullivan said.

The judge said testimony during two weeks of court proceedings, including from executives at McDonald's Corp. and American Electric Power Co., demonstrated that corporate customers have been able to get lower prices because of competition between Staples and Office Depot.

"This testimony shows that absent Office Depot, large B-to-B customers would lose tremendous leverage and likely have to pay higher prices for consumable office supplies," Judge Sullivan wrote.

One of the big questions in the case was whether Amazon.com Inc., which last year launched a new website to sell office supplies to business customers, would emerge as a near-term competitive alternative for corporate customers to a postmerger Staples.

Staples and Office Depot portrayed Amazon as a major competitive threat, but Judge Sullivan said the future was too uncertain.

The judge said it was an "unenviable task" to assess Amazon's competitive prospects in the corporate office-supply space, noting the online giant had "impressive strengths" including brand recognition and a user-friendly and reliable Internet marketplace. But the judge also said the company's office supply portal faced challenges, including its lack of experience in bidding on large corporate contracts and its lack of ability to control the prices set by third-party vendors who sell office supplies on Amazon's site.

Large customers "still do not view Amazon Business as a viable alternative to Staples and Office Depot," the judge wrote, adding that the evidence so far didn't show that Amazon could fully replace competition over the next three years and compete on par with a merged Staples-Office Depot.

Judge Sullivan during the court proceedings expressed concern about allegations by Staples that the FTC had improperly urged an Amazon witness to play down the company's ability to compete, allegations the commission denied. The judge's ruling referenced his prior concerns but said, "No evidence of an improper motive on the part of the FTC was ever presented."

Staples and Office Depot caused quite a stir in legal circles by declining to present a defense to the FTC's case, a tactic that legal observers said was unheard of in merger cases.

While the office superstores argued the FTC's case was so weak that no defense evidence was necessary, Judge Sullivan's opinion signaled the companies' defense strategy hampered their case.

The judge in several passages noted that the companies chose not to rebut certain FTC evidence or present their own evidence to support claims they made at the beginning of the proceedings.

For example, Judge Sullivan referenced objections by Staples and Office Depot to the way the FTC's economic expert calculated their market shares, but he said the companies "produced no expert evidence during the hearing to rebut that methodology."

A Staples spokesman on Tuesday said, "We're now focused on the future of Staples, not the past." Office Depot declined to comment.

An FTC official applauded the ruling last week but had no further comment on the public release of the opinion.

Judge Sullivan also said the companies didn't support their claims about the cost-savings produced by the merger or the merits of a settlement proposal they made to the FTC in an attempt to save the deal.

"Because defendants rested at the close of plaintiffs' case-in-chief and called no witnesses to support their arguments related to remedies or efficiencies, they have not met their burden," the judge wrote.

Judge Sullivan said he understood that Staples and Office Depot "genuinely believe this merger would be best for their companies, the industry and the public." In blocking the merger, the judge said he was "optimistic" that the companies "will find ways to innovate, evolve and remain relevant in the rapidly changing office supply industry."

Drew FitzGerald contributed to this article.

Write to Brent Kendall at brent.kendall@wsj.com

 

(END) Dow Jones Newswires

May 18, 2016 01:55 ET (05:55 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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