Every year billions of sheets of paper are used in the running of the nation’s governments. They are held together with millions of paper clips and staples.
There are sticky notes by the truckload, pens aplenty and highlighters for all. One dollar out of every three spent in the $10 billion office supplies sector comes out of state and federal governments and right now there’s a battle royal raging over who should get to fill those stationery cupboards.
In the fight a local home-grown business, run by immigrant entrepreneur Dominique Lyone, called Complete Office Supplies (COS) is up against two global heavyweights of the stationery world.
The heavyweights want to merge. If that goes ahead, Australia will have allowed a mega-supplier tie-up other countries’ regulators have knocked back twice on competition grounds.
The stakes are high not only for the participants but for their customers which include those paper-shuffling public departments spending taxpayer billions.
Lyone arrived in Australia in 1967 as a 13-year-old after he and his family fled Egypt during the six-day war with Israel.
His father spoke not a word of English. The move was to build a better future for the family, Lyone’s father told him, and eventually he owned a small typewriter repair business.
Building on that Lyone started a local office stationery business in western Sydney where the top selling item was typewriter ribbon. COS is now the largest 100 per cent Australian-owned office products company, selling over 20,000 products with over 350 staff.
“At the end of the day what gets you over line is absolutely sheer determination. Do it, do it, do it again, you’re more likely going to fail but failure is just an element of success,” Lyone says.
At the other end of the scale are two massive businesses whose proposal to combine is causing concern in some quarters, not least that of the Australian Competition and Consumer Commission.
Detroit Pistons owner Tom Gores. Photo: Carlos Osorio
One is Platinum Equity a $US6 billion ($7.5 billion) private equity player from America. Its billionaire chief executive Tom Gores paid a reported $US325 million for the NBA team Detroit Pistons in 2011.
We simply want to protect ourselves from being dominated by an entity with a combined 85 per cent plus market share.
Included in the deal was an entertainment complex, the Palace of Auburn Hills and the DTE Energy Music Theatre.
Platinum bought its way into this fight in April 2017 when it acquired the Australian and New Zealand Staples business from its American parent Staples Inc for an undisclosed sum.
The America-based Staples giant was also founded on typewriter ribbon. Tom Stemberg was inspired to start the business after his ribbon broke on a public holiday and he couldn’t get it replaced.
Prior to its sale, also to private equity, the America-headquartered Staples was posting quarterly sales in 2016 in excess of $US5 billion.
Platinum renamed and rebranded the local Australian Staples business as Winc (short for “work incorporated”) in September.
Staples was recently renamed as winc. Photo: Supplied
The other big player in the Australian market is OfficeMax, a subsidiary of another American giant – Office Depot. In August Office Depot announced quarterly sales of $US2.4 billion.
But that company, as part of a series of global divestments, wants out of Australia. It wants to sell to Staples – or Winc as it’s now known – and has been working to seal that deal since it was announced in April.
The company’s chief executive Gerry Smith told investors on an earnings call that the company was “awaiting final regulatory approval in order to conclude our sales in Australia and New Zealand”.
A tie-up between Staples and Office Depot in Australia would be an intriguing chapter to a deal with a history that traverses both the globe and numerous ownership changes.
In 1997 Staples Inc in America tried to buy the entire Office Depot Inc operation. This was blocked by American regulators on competition grounds. (Just to add to the complexity, Office Depot at that point did not own OfficeMax.)
Staples Inc was back in 2015 again trying to gobble up Office Depot Inc and its global web of subsidiaries which now included OfficeMax in Australia.
That deal fell over again in May 2016 on competition grounds in America and elsewhere.
Staples wanted to buy Office Depot in 2015 Photo: Daniel Acker
Federal Trade Commission chairwoman Edith Ramirez is quoted in the New York Post at the time as saying the merger was “likely to eliminate beneficial competition that large companies rely on to reduce the costs of office supplies”.
It was also stopped by regulators in Canada and raised serious questions in Europe and New Zealand.
But the ACCC was happy enough to wave it through. Why?
“On the basis of its review at that time, the ACCC considered that the acquisition was unlikely to raise competition concerns in Australia,” the agency said in a statement.
The ACCC did conduct a public review of that transaction. It concluded that the Wesfarmers-owned Officeworks would likely provide a large enough future competitor to a merged Staples/OfficeMax company.
The regulator also noted there was not much in the way of objection from potential customers or competitors in the sector.
Fast forward a year though and there are signs of a fight. For this time the ACCC and others are worried about what a tie-up between Winc and OfficeMax might mean in this market.
“A higher level of concern is being expressed from market participants in the context of the proposed acquisition this time round,” the ACCC says in a press release asking for submissions on the deal.
One factor that has certainly shifted is that the ACCC now doesn’t seem to think Officeworks is a credible rival.
“Market inquiries suggest that Officeworks has not expanded significantly into the supply of large customers and appears to have no plans to do so,” the release says.
Officeworks was touted as a potential competitor to a merged Staples/Officemax Photo: Supplied
COS’s Lyone is also certainly worried about the prospect of the ACCC approving the acquisition.
“COS is a family business. If Staples and OfficeMax were allowed to merge, they would be ten times our size. It has taken us 40 years to get this far,” Lyone told Fairfax Media via email.
The broader significance is that all Australians are customers of these companies courtesy of massive taxpayer spending on office supplies.
According to IBISWorld senior industry analyst Kim Do government departments account for about 30 per cent of the $10 billion revenue in the corporate office supplies market.
Do says master contracts are used to harness economies of scale and that those “arrangements with large office supplies dealers deliver substantial savings and efficiencies to government entities”.
The process is managed at a national level by the federal Department of Finance. It handles stationery and office supplies for over 140 Commonwealth departments and entities.
The department establishes a panel of suppliers following a tender to make it easy when government goes shopping for things it uses regularly.
COS and Staples Australia are currently the two panellists on the new Whole of Australian Government Stationery and Office Supplies (SOS II) Panel. That panel expires this month.
At the end of August 2017 Staples Australia had open contracts with the Finance department valued at $112 million. While at the same time COS’s share of the pot was valued at $24 million.
Supplying governments is big business. Photo: Louie Douvis
At the state level, the Victorian government commenced a three-year (with two one-year extension options) State Purchase Contract (SPC) sole supplier arrangement with COS, at a total value of $36.5 million, in October 2015.
It is a good contract to win. Once an SPC is established it leaves very few other options when spending taxpayer’s money to stock the departmental stationery and kitchen cupboards.
Therefore it is only COS who presently provides a basket of goodies to Victorian public servants filled with the likes of copy paper, printer cartridges, calculators, coffee, tea and cleaning supplies.
A Victorian public servant told Fairfax Media the sourcing and tendering process is very stringent in government.
“Don’t think we went with them because they were cheap or Australian. We have all the process of approval documented, so that we can show how transparently we arrived at the decision,” they said.
“The way that government teaches us to think is that they have gone through a fairness process, so the whole argument is that the reason we are now with one supplier is because we have gone through a process of getting all the tenders’ responses, [then] working out who’s best for the country.”
These contracts could well be where the ACCC focuses its attention.
“Preliminary concern is that the loss of competition between Staples and OfficeMax could result in higher prices and/or lower levels of service,” an ACCC spokesperson told Fairfax Media.
“The ACCC is considering the extent to which other competitors will have the ability to compete with a combined Staples/OfficeMax for large customers after the acquisition.”
This may give some comfort to Lyone.
”We simply want to protect ourselves from being dominated by an entity with a combined 85 per cent plus market share financed by a $US6 billion private equity fund,” he says.
“We live and breathe office products. We are in this business for the long term. Our wish is to continue doing what we do, providing our customers with choice, good value and great service.”
Not to be outdone, Lyone launched his own bid to buy OfficeMax – again for an undisclosed sum – in July.
That bid is also under ACCC review, which will no doubt consume quite a bit of paper.