United States: The FTC's Consent Decree In The Staples/Essendant Deal

On January 28, 2019, the Federal Trade Commission ("FTC") entered into a consent decree with office supply superstore Staples Inc. ("Staples") in its acquisition of office supply wholesaler Essendant Inc. ("Essendant").1 The deal is primarily vertical, but the length and depth of the review shows that the FTC is quite active and thorough, even when investigating vertical deals. In adopting a limited behavioral remedy, the FTC revealed fundamental disagreements between the new Commissioners and a deep schism over the correct level of merger enforcement and methods to police growing industry consolidation.


Staples, owned by private equity firm Syca-more Partners II, L.P. ("Sycamore"), is "the largest vertically integrated reseller of office products in the United States"2 and sells office supplies to individual consumers and to corporate and government end customers.3 Essendant also specializes in office supplies, but sells only at the wholesale level to commercial resellers, including US customers such as Office Depot, Costco, a host of independent dealers, online retailers, and its purchaser, Staples.4 Staples and Essendant are thus vertically situated because they sell to a different level of the supply chain. Both companies supply mid-sized businesses, although only Staples sells to those businesses directly. Accordingly, the FTC's review focused on mid-sized businesses and local markets.5

The Deal

Staples, via its parent Sycamore, filed for antitrust clearance to acquire Essendant in early June 2018.6 The review, thus, wore on for more than seven months before a final disposition of the deal was announced in late January 2019. The lengthy review of this transaction continues a trend of significant enthusiasm at the FTC and DOJ for investigating large vertical mergers.7

The most interesting aspect of the FTC's enforcement action is likely, however, not the specifics of the consent decree, but the widely-divergent perspectives of the Commissioners as to the appropriate standards and levels of merger enforcement. There were four written opinions, including a three-commissioner majority opinion, one concurring opinion, and two dissents. Much can be learned about the new makeup of the Commission from the various opinions.

The Majority Opinion Joined by Commissioners Joseph Simons, Noah Phillips, and Christine Wilson

The FTC's investigation covered careful consideration of multiple theories of harm,8 including:

  • Raising rivals' costs: The FTC analyzed whether Staples would be able to acquire market power allowing it to raise prices of upstream suppliers or otherwise adopt strategies to shift upward the supply curve of its rivals.
  • The acquisition of monopsony or market power on the buy side: The FTC analyzed whether Staples would garner increased market power from the merger to enable it to squeeze its upstream manufacturers and extract income in the form of lower prices.
  • A loss of future competition: The FTC analyzed the likelihood of entering the office supply wholesale business, or of Essendant shifting its approach to directly supply consumers or businesses.
  • Anticompetitive use of commercially sensitive data: The FTC analyzed whether Staples could use Essendant's data related to its reseller customers' commercially-sensitive business information to offer higher prices when bidding against a reseller for an end customer's business.

As to the first three theories, the majority opinion (concurring with the recommendations of FTC staff) determined that these potential harms were unlikely and were not supported by the qualitative and quantitative evidence. Of note, none of the five Commissioners disagreed as to the notion that vertical transactions can be either pro- or anticompetitive, nor was there disagreement between any of the Commissioners on the need to carefully evaluate every potential theory of harm. The majority articulated that it was simply unwilling to bring an enforcement action on the basis of theoretical harms unsupported by factual evidence.

The majority opinion (and, in turn, the consent decree), was concerned with the more limited theory of harm stemming from the potential use by Staples of Essendant's competitively-sensitive data. Essendant keeps detailed data from its reseller customers (including Staples' competitors), which carries a significant competitive value to Staples. The FTC was concerned that if Staples gained access to this data, it could strategically raise prices to mid-sized businesses when bidding against Essendant's resellers.9 Accordingly, the consent order employs a behavioral remedy to establish a firewall cutting off Staples' access to Essendant's data.10


1 Press Release, FTC Imposes Conditions on Staples' Acquisition of Office Supply Wholesaler Essendant Inc., Jan. 28, 2019, https://www.ftc.gov/news-events/press-releases/2019/01/ftc-imposes-conditions-staples-acquisition-office-supply.

2 Analysis of Agreement Containing Consent Order to Aid Public Comment, In the Matter of Sycamore Partners II, L.P., Staples, Inc., and Essendant Inc., File No. 181-0180, Docket No. C-4667, at 2, Jan. 28. 2019, <<a target="_blank" href="https://www.ftc.gov/system/files/documents/cases/1810180_staples_essendant_analysis_1-28-19.pdf"> https://www.ftc.gov/system/files/documents/cases/1810180_staples_essendant_analysis_1-28-19.pdf.

3 Id.

4 Id. Essendant has only one major competitor in the office supply wholesale business-S.P. Richards Company ("SP Richards")-indicative of the fact that this market is highly concentrated. Id. at 2.

5 Id. at 2-3.

6 Lauren Hirsch, Sycamore Partners files documents to show it isn't giving up its push to buy workplace wholesaler Essendant, CNBC (June 5, 2018), https://www.cnbc.com/2018/06/05/sycamore-partners-files-documents-workplace-wholesaler-essendant.html.

7 The current Director of the FTC's Bureau of Competition, D. Bruce Hoffman, has stated that the FTC is very interested in vertical issues, with multiple ongoing merger investigations. See Statement of D. Bruce Hoffman, American Bar Association Antitrust Section, Antitrust Masters Course IX, Cambridge Maryland (Oct. 18-20, 2018). Both agencies have shown this interest. For example, the DOJ attempted to prevent the merger of AT&T and Time Warner, where the DOJ argued that consumers would face higher prices when a content distributor withAT&T's size gained access to TimeWarner's vast library of content. U.S. v. AT&T, Inc., Memorandum Opinion, No. 17-2511 (RJL) (D.D.C. June 12, 2018). See also Press Release, FTC Approves Modified Final Order Imposing Conditions on Northrop Grumman's Acquisition of Solid Rocket Motor Supplier Orbital ATK, Inc., Fed. Trade Comm'n (Dec. 4, 2018), https://www.ftc.gov/news-events/press-releases/2018/12/ftc-approves-modified-final-order-imposing-conditions-northrop (the FTC imposed remedies in a merger between a manufacturer of missile systems and a missile component supplier); Press Release, FTC Accepts Proposed Consent Order in Broadcom Limited's $5.9 Billion Acquisition of Brocade Communications Systems, Inc., Fed. Tr. Comm'n (July 3, 2017), https://www.ftc.gov/news-events/press-releases/2017/07/ftc-accepts-proposed-consent-order-broadcom-limiteds-59-billion (the FTC required remedies where a fibre channel switch manufacturer was purchased by its supplier).

8 The FTC's review demanded the production of millions of documents and relied heavily on sophisticated economic analyses reviewing price, output, and market analytics.

9 Id.

10 Id. at 3-4.

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Originally published in The M&A Lawyer

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