The Federal Trade Commission last week gave conditional approval for the pending merger of office products giants Staples and Essendant, calling on Staples to restrict its access to “commercially sensitive information” about Essendant’s client resellers.

Staples Inc.’s pending acquisition of Essendant Inc.—a nearly $1 billion deal that would result in a new office products distribution powerhouse—came closer to completion Friday after the Federal Trade Commission issued a conditional approval designed to prevent unfair competition.

Absent a remedy, the acquisition would give Staples access to information it previously could not obtain relating to Essendant’s resellers.

The combination of Essendant and Staples will produce a new powerhouse in the wholesale distribution of office supplies as well as other business and industrial products. Framingham, Massachusetts-based Staples, before it was acquired for $6.9 billion in 2017 by investment firm Sycamore Partners, reported $10.108 billion in sales at its North American Delivery unit, which comprises its business-to-business distribution operations including StaplesAdvantage.com and Quill.com. NAD also includes the flagship site Staples.com, which sells to small businesses and consumers.

Essendant, a Deerfield, Illinois-based top-tier distributor that sells through an internet platform to thousands of distributors and resellers—including many that it helps to develop, and sell through, their own ecommerce sites—reported $1.3 billion in net sales for its most recent financial quarter ended Sept. 30, 2018, and more than $5 billion for the fiscal year ended Dec. 31, 2017.

FTC cites ‘commercially sensitive information’

But the FTC, in a complaint filed last month, had determined that Staples stood to gain competitive information on Essendant’s resellers, potentially providing Staples an unfair advantage in selling to small and mid-sized businesses. In a proposed consent agreement tied to its pending approval, the FTC is calling for Staples and Sycamore to restrict access by their employees to “commercially sensitive information” on customer accounts of Essendant’s resellers. The FTC, which issued a public comment form today, is accepting comments on its proposed consent agreement, with all comments due by Feb. 27.

The FTC’s proposed consent agreement refers specifically to access Staples would gain to Essendant resellers’ customer accounts through Essendant’s “Wrap and Label” and drop-ship programs, under which Essendant provides fulfillment and delivery services to resellers’ customers. Resellers provide Essendant with customer account information to enable it to carry out those services, and the FTC wants to ensure that account information isn’t passed onto Staples.

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“Absent a remedy, the acquisition would give Staples access to information it previously could not obtain relating to Essendant’s resellers,” the FTC says, adding: “The proposed consent agreement requires Sycamore and Staples to create a ‘firewall’ separating Staples’ business-to-business end-customer selling functions from Essendant’s wholesale selling function.” The FTC also has proposed setting up a method to monitor compliance with the consent agreement for a 10-year period.

In September, Staples and Essendant announced an agreement under which Staples would pay $12.80 per share for Essendant, for a cash offer of  $482.70 million, plus assumption of debt, bringing the total acquisition price to $996 million.  The agreement upended a prior plan by Essendant to merge with the S.P. Richards office supplies business of Genuine Parts Co.

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