New York -- Office Depot and OfficeMax are in talks to merge, according to reports by the Wall Street Journal and Bloomberg.
The retailers are discussing as potential stock swap that would result in a single company with nearly $18 billion in revenue, reports said. The combined company would be better positioned to take on Staples, Walmart and other competitors.
"The merger makes sense with both companies suffering from falling revenue since the 2008 recession and struggling to generate a profit margin of 3.0% (while Staples generates a margin greater than 8.0 percent)," explained IBISWorld office supply industry analyst, Dale Schmidt. "The hope is that the resultant company could cut redundant costs, raising its profit margin, while retaining a market share that will compete with Staples. However, with the ever-increasing popularity of online sales and big-box retailers, the brick-and-mortar chains of both Staples and the merged company will struggle to grow significantly."
Any deal that is struck, however, may be challenged by the Federal Trade Commission, Bloomberg said. In 1997, a lawsuit by the FTC prevented Staples from acquiring Office Depot.
"We think there is a fair amount of risk that the FTC would not look favorably on a potential merger of the number two and number three players in the office product space," said Citi Investment Research analyst Kate McShane in an Associated Press report.
Rumors of a merger between the two office supply chains, both of which have been struggling, have been circulating since last year.