The chief executives of Staples Inc. and Office Depot Inc. said this week they will “fight to complete” their planned merger after the Federal  Trade Commission said it would seek to block the deal because of concerns over eliminating competition in the sale of office supplies and related products to business customers.

The two companies contend that the FTC doesn’t understand the realities of the Internet age, in which they face widespread competition from manufacturers, distributors, wholesalers and retailers selling online to businesses as well as to consumers.

“The government’s challenge, if successful, will hurt customers of both companies and jeopardize our ability to compete in a rapidly evolving marketplace,” the companies said in a Dec. 7 letter to their customers, which was posted on their websites and signed by Ron Sargent, chairman and CEO of Staples, and Roland Smith, chairman and CEO of Office Depot. “This merger creates an unparalleled opportunity to better serve customers of Staples and Office Depot.”

The government sees things differently, particularly regarding how Staples and Office Depot dominate sales to large businesses. “The commission has reason to believe that the proposed merger between Staples and Office Depot is likely to eliminate beneficial competition that large companies rely on to reduce the costs of office supplies,” FTC Chairwoman Edith Ramirez says. “The FTC’s complaint alleges that Staples and Office Depot are often the top two bidders for large business customers.”

At stake is Staples’ pending $6.3 billion acquisition of Office Depot, announced in February, that would create a combined company with more than $11 billion in annual B2B e-commerce sales, according to the B2B E-Commerce 300, which ranks companies on their annual B2B web sales. The B2B E-Commerce ranks Staples No. 21 and Office Depot No. 42; combined, they would rank No. 14, following IBM Corp. The two distributor/retailers are also ranked among the leading e-commerce companies in the Internet Retailer Top 500, where Staples is No. 4 and Office Depot No. 8.

Staples sells to business-to-business customers through its North American Commercial division, which sells through Quill.com and StaplesAdvantage.com as well as through sales reps. Quill caters to small to midsize companies, StaplesAdvantage to larger companies. Office Depot sells to businesses through websites including OfficeDepot.com, OfficeMax.com and OfficeMaxWorkplace.com.

The FTC, during its investigation of the pending merger of Staples and Office Depot, zeroed in on the market for corporate customers that buy office products in large quantities through contracts that ensure steady deliveries and discounted prices. Two years ago, when the agency approved Office Depot’s merger with OfficeMax, it took a different approach in finding that consumers have numerous options because of competition from Amazon.com Inc. and major retail chains like Wal-Mart Stores Inc., which sell online as well as through stores. Amazon.com is No. 1 in the Internet Retailer Top 500 Guide; Wal-Mart is No. 3.

The deal will collapse if the companies are forced to delay it to face a government challenge in the FTC’s in-house court scheduled for May, says Matt Reilly, a lawyer for Office Depot.

The FTC is asking a federal court judge in Washington to stop the transaction from closing pending the May court challenge. Reilly said during a court hearing Tuesday that if the judge approves the FTC’s request it would mean a drawn-out administrative process that isn’t an option for Staples and Office Depot. “This merger cannot survive” the FTC process, Reilly said.

The office supplies companies said they offered to divest more than $500 million in commercial contracts to resolve antitrust concerns. Diane Sullivan, an attorney representing Staples, said at the hearing this week that the companies didn’t receive a counteroffer from the FTC.

Other office supplies merchants, meanwhile, say they’ve benefitted from what they call confusion among some buyers regarding what will happen with the two office supplies giants. Some customers have traditionally preferred one of the giants over the other, and with a pending merger they’ve begun to consider alternatives, says Joe Schaefer, vice president of sales and marketing at OfficeSupply.com, a distributor of office supplies ranging from paper shredders to furniture.

“The Staples and Office Depot merger has caused a lot of customer confusion, and I think customers are going out and seeing what other options are out there,” he says. Indeed, he partially credits the pending merger for driving 20% year-over-year growth over the past 12 months in online sales at OfficeSupply.com.

In a related matter, Staples and Office Depot said yesterday they were also objecting to an antitrust action recently taken in Canada, where the Canadian Competition Bureau announced it will seek to block the company’s acquisition of office supplies merchant Grand & Toy. As in their dealing with FTC, Staples and Office Depot contend that Canada’s antitrust officials don’t understand current market competition of the digital economy, where the office supplies giants face “numerous strong competitors, including office products dealers, manufacturers selling office supplies direct to business customers, dealers in adjacent categories, cooperatives of regional players, and Internet resellers.”

“We will continue to fight to complete this transaction and to provide our customers with the lower prices and better services that they deserve,” the companies said in a letter to Canadian customers posted on their websites and signed by Sargent and Smith.

Sign up for a free subscription to B2BecNews, a twice-weekly newsletter that covers technology and business trends in the growing B2B e-commerce industry. B2BecNews is published by Vertical Web Media LLC, which also publishes the monthly business magazine Internet Retailer. Follow Nona Tepper, associate editor for B2B e-commerce, on Twitter @ntepper90.

Bloomberg News contributed to this report.

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