Essendant Inc., an ecommerce-focused, top-tier distributor of business supplies to thousands of resellers, is down to one remaining lawsuit filed against it regarding the 2018 deal that made it a sister company of office supplies behemoth Staples Inc. under private equity firm Sycamore Partners.

A court in Delaware last week sided with Essendant in its motion to dismiss a class action complaint filed by Essendant shareholders. The shareholders failed to substantiate their claims that Essendant’s board and Sycamore breached their fiduciary duty when the two companies negotiated Sycamore’s acquisition of Essendant, causing the latter to abort its prior agreement to merge with office supplies distributor S.P. Richards, a unit of Genuine Parts Co., according to a court document filed by the Court of Chancery in Georgetown, Delaware.

Why the plaintiffs lost out

The Essendant shareholders had indicated that the Sycamore acquisition resulted in a deal that was less attractive financially than the planned merger with S.P. Richards. “The gravamen of the complaint is that the Essendant board succumbed to pressure from Sycamore and improperly turned GPC away in favor of an inferior proposal from Sycamore,” according to the court document.

But Joseph Slights, vice chancellor of the Court of Chancery, noted several reasons in his dismissal of the complaint why the plaintiffs failed to back their claims. He found, for example, that the plaintiffs failed to show that “the Essendant board was dominated and controlled by Sycamore or that a majority of the Essendant board acted out of self-interest or in bad faith when approving the Sycamore merger.” Slights also noted that the plaintiffs failed to show viable claims against Richard D. Phillips, who was CEO of Essendant during the negotiations with Sycamore.

Essendant accepted Sycamore’s second offer, which was valued at $996 million including the assumption of debt. “This was a typical, arm’s-length, two-step public company merger negotiation,” Slights wrote.

Now growing alongside Staples

Harry Dochelli, president, Essendant

As a sister company now with Staples, Essendant is taking several steps to expand the range of inventory and services, including personalized business products through Staples Promotional Products, that it makes available to resellers. Essendant also works with many of its resellers to help them sell to their own business customers through ecommerce sites.

Harry Dochelli, who is now Essendant’s president, said in a recent interview with DC360 B2B that he sees strong growth ahead under the company’s new corporate structure. “I’m highly encouraged by our new relationship with Sycamore and Staples,” he said. “It gives us a much stronger financial position we haven’t had as a stand-alone company, and going forward we’re capturing the synergy of companies under the umbrella of Sycamore Partners. It gives us a much better position in the market.”

Essendant still faces a pending separate lawsuit filed by GPC for breach of contract. In that case, Slights last fall denied Essendant’s motion to dismiss it.

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