Dive Brief:

• Staples investors are apparently especially concerned about the Federal Trade Commission’s move to block its proposed merger with Office Depot. The retailer’s share price fell 14% Monday and another 8% Tuesday, while Office Depot’s shares, which fell 16% Monday, were stable Tuesday.

• The FTC Monday filed a federal complaint in court to block the proposed merger. The companies issued a joint statement saying that the FTC’s analysis was flawed and that they would fight the complaint in court. 

• The FTC’s complaint says that the merger would impair competition in the business supplies space, and analysts say that the current lack of clarity about the merger calls into question the two retailers’ future prospects.

Dive Insight:

There may be still a way for Staples and Office Depot to merge, if they can spin off the business office-supplies part of their business, or a significant portion of it. But the FTC doesn’t seem to believe that enough of any such business can be divested to ensure healthy competition in the space.

Divesting too much could also impair the viability of any merged company, analysts say, calling into question its foundation.

It’s a damned-if-they-do, damned-if-they-don’t proposition.

“Ultimately, the end market for office products remains challenged, competition is increasing, and these seem likely to be businesses with declining operating profit (net of synergies and cost savings),” Keybanc Capital Markets analyst Bradley Thomas wrote in a note.

Without the merger, Staples will likely have to continue to boost its e-commerce, close underperforming stores, and find new products and services that appeal to consumers, analysts say. All that in the face of increasing competition, at least on the retail side. 

“It’s a tough slog,” Harvard Business School professor of retailing Rajiv Lal told the Boston Globe. “There are some very special challenges.”