Are large retail mergers the way to deal with the continued threat from online sellers?

This morning has seen speculation that Office Depot Inc and OfficeMax Inc are in discussions to merge, according to “people familiar with the matter”. On paper this would seem like nothing out of the ordinary - two multinational, listed companies potentially in discussions regarding strategic synergies, including a possible merger. In fact some people might even be surprised to learn that the companies weren’t already linked, given the similarities in their names. Many people would not question the logic of combining the two entities and thereby reducing competition and surely providing financial cost savings that could ultimately be passed on to consumers.

Critics of M&A believe deals like this one leave consumers with decreasing options for goods and services and have a direct impact on the labour forces of the combined entities, usually via increased job losses. In the UK we are seeing high street retailers dropping like proverbial flies and this can be directly linked to increasing levels of online shopping as a result of cost-effective options like Amazon, amongst others, and the increasing dominance of supermarkets who are expanding their reach into non-grocery products more and more.

So in thinking about this potential tie up, could the resulting synergies of a deal like this enable the “newly merged” entity to provide stiffer competition to online retailers and allow consumers who like to go to a physical “shop” and “touch” their purchases to continue to do so?

Filed under: retail, US, dealmaking