Essendant Inc. is now part of Staples Inc., the two companies announced today.
Staples and Essendant issued a combined statement early today noting that affiliates of Staples had successfully completed a tender offer to acquire all of the outstanding shares of Essendant common stock for $12.80 per share, a sum valued at $487.2 million. Plus the assumption of debt, the companies have valued the total deal at $996 million.
Essendant filed with the U.S. Securities and Exchange Commission today a notification of removal of its listing on the Nasdaq Stock Market—a move the companies said would follow Essendant becoming a wholly owned subsidiary of Staples.
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 is comprised of 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.
Staples and Essendant announced the completion of the merger and acquisition days after the Federal Trade Commission approved the deal with conditions calling on Staples and its owner, Sycamore Partners, to ensure that Staples would not access and use “commercially sensitive information” from Essendant and its resellers for the purpose of selling directly to those resellers’ end customers.
A ‘firewall’ protecting Essendant’s resellers
The two companies were ready to close on the acquisition earlier this week, but had to wait until the tender offer completed its course, a Staples spokesman says. When the FTC returned to work after the government shutdown and approved the deal this week with conditions, Staples and Essendant had already taken steps to provide a “firewall” method to ensure the independence of Essendant’s resellers, he adds.
Staples and Essendant will operate separately under their own brands and with separate sales staffs, but benefit by sharing supply chain and other support operations, the spokesman says.
“Staples views the reseller community as partners in serving customers that will allow us all to be successful,” Staples CEO Sandy Douglas said in a prepared statement today. “We value the relationships the resellers have built with Essendant and look forward to helping them build on their already impressive success. We’ve created a strong, externally monitored firewall, to protect resellers’ confidential information, as required by the FTC, and also as a sign of trust, because we know it’s the best thing for the Essendant business, and the resellers.”
As part of the transition, Ric Phillips, president and CEO of Essendant, has announced his intention to seek opportunities outside the company. Harry Dochelli, who has been with Essendant for the past six years, most recently in the role of president of Office and Facilities, has been named president of Essendant and will lead the Deerfield, Illinois-based organization.
The FTC, in announcing its conditional approval on Jan. 25, said it would take public comments on the merger until Feb. 27. But the comment period doesn’t directly affect the closing of the acquisition, the Staples spokesman says.
The FTC’s reasoning
The FTC’s conditional approval of the merger marked what some say could be a landmark case by the agency’s new team of commissioners regarding the treatment of merged companies. The commission voted to approve the Staples-Essendant deal by a 3-2 vote along party lines.
In a statement about the decision, FTC Chairman Joseph Simons, speaking for the Republican majority, says the primary concern the agency considered was the potential for Staples to raise Essendant’s prices to Essendant’s client distributors and resellers, some of whom sell office products to businesses that Staples also sells to directly. Theoretically, Staples could then gain a competitive advantage by undercutting the prices of Essendant’s channel partners.
But the FTC’s Republican majority rejected that scenario, Simons said, for multiple reasons. One was that, if Essendant’s channel partners wanted to find better pricing, they would likely turn to Essendant’s largest competitor, S.P. Richards, “as the evidence showed that S.P. Richards is a viable substitute for Essendant” for products and services, Simons says in his statement.
Ironically, Essendant had planned to acquire S.P. Richards, a business unit of Genuine Parts Co., before Staples approached with what became its successful offer to acquire Essendant.
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