UNITED STATES OF AMERICA

Federal Trade Commission

WASHINGTON, D.C. 20580

Office of Commissioner

Rohit Chopra

 

STATEMENT OF

COMMISSIONER ROHIT CHOPRA

In the Matter of Sycamore Partners, Staples, and Essendant 

Commission File No. 181-0180 

January 28, 2019 

Summary

• This transaction violates the law, and I am skeptical that this settlement is in the public 

interest. While Commission staff worked hard to explore key aspects of the transaction, I am 

concerned that the Commission is jumping to conclusions without further investigation into 

the buyer’s plans, especially given the limitations of our economic models. 

• Our investigation should have more closely analyzed how the buyer will flex its muscles 

with suppliers. The Commission seems too quick to assume this is an “efficiency” instead of 

a harm stemming from increased market power.

• In addition, the evidence points to potential harm to independent dealers, especially in 

geographic markets where Essendant is the market leader and where switching may be 

difficult. 

Sycamore Partners, a private equity fund that controls office supply giant Staples, seeks to 

acquire Essendant (NASDAQ: ESND), the largest office products wholesale distributor in the 

U.S and supplier to thousands of independent dealers. The merger combines two powerhouses, 

each the largest competitor within their respective level of office supply distribution. The market 

for nationwide wholesale distribution of office supplies is particularly concentrated, where 

Essendant is one of only two U.S. wholesalers supplying a wide assortment of office products 

nationwide. 

At first glance, the transaction is a vertical merger, but it also raises important horizontal 

concerns. I believe the Commission is relying on an insufficiently developed record that 

underestimates the likely anticompetitive harms on both of these fronts. I share the concerns 

raised by Commissioner Slaughter and agree that our approach can lead to lax enforcement. 

Sycamore reportedly announced that it would put a “firewall” into place – regardless of whether 

or not the FTC required one1

 – to prevent Staples from exploiting sensitive dealer data from 

Essendant. The Commission has voted to put Sycamore’s promise on paper, rather than seek 

additional measures to address anticompetitive harms or block the transaction altogether. 

 

1 See Andy Braithwaite, Dealer Organisations Unite for FTC Letter, OPI, Oct. 1, 2018, https://www.opi.net/news/dealerorganisations-unite-for-ftc-letter/. 
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Horizontal Concerns

Both Staples and Essendant source office supply products from a wide range of upstream trading 

partners, including small and large manufacturers alike. Proponents of the merger will claim that 

this will create “efficiencies” in the form of increased buyer power that reduces prices paid to 

suppliers. But is this an efficiency or a harm?

To start, efficiencies are far from a sure-fire defense to an anticompetitive merger.2 Increased 

buyer power exerted by the combined firm against its upstream trading partners in this matter 

would not be an efficiency at all if it stems from an increase in market power on the buy side of 

the market.3 Sycamore’s expanded empire potentially allows it to squeeze its suppliers, in effect 

transferring income from those suppliers to the merged firm, with little or no resource savings.4

In my view, the Commission’s analysis did not adequately rule out the possibility of this type of 

harm from the merger.5

My colleagues voting for this settlement claim that the potential for this type of harm was ruled 

out after a thorough analysis and investigation. I disagree. If an independent fact-finder or a 

Court reviewed the same evidence, I think they would disagree too and find that there are many 

unanswered questions. 

Manufacturers with market power and must-have brands may very well be able to protect 

themselves from an anticompetitive exercise of buyer power by the merged firm, but this is an 

area where we needed further analysis and investigation to reach a conclusion about potential 

monopsony power over a broad range of suppliers. Even if the wealth transfer from suppliers to 

Sycamore will translate into some cost savings for end-user purchasers, this is not necessarily an 

adequate legal justification. 

Six months ago, this Commission ordered divestitures of blood plasma collection centers in the 

Grifols-Biotest merger, since the combined entity would be able to use its increased bargaining 

leverage to lower payments to suppliers of blood plasma.6 The Commission rightfully did not 

 2 See Federal Trade Commission et al. v. Penn State Hershey Medical Center et al., 838 F.3d 327, 347 (3rd Cir. 2016), where 

Judge Michael Fisher, in a unanimous reversal siding with the Commission, noted that the Court has never formally adopted the 

efficiencies defense, and the Supreme Court has “. . . cast doubt on its availability.” Judge Fisher added that “. . . we are skeptical 

that such an efficiencies defense even exists.” Id. at 348. 3 U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines, § 12 (2010) [hereinafter Horizontal Merger 

Guidelines], http://www.ftc.gov/os/2010/08/100819hmg.pdf. See also C. Scott Hemphill & Nancy L. Rose, Mergers That Harm 

Sellers, 127 YALE LAW JOURNAL 2078 (2018); Jonathan Sallet, Buyer Power in Recent Merger Reviews, ANTITRUST, Vol. 32, No. 

1, at 82 (Fall 2017). 

4 The Department of Justice’s lawsuit challenging the proposed merger of Anthem and Cigna alleged that the increased buyer 

power of the combined firm would give Anthem enhanced leverage over physician practices and hospitals, likely reducing the 

rates that both types of providers earn. Although the complaint predicted likely reductions in output from hospitals and 

physicians, the Department of Justice argued that the court did not need to make such a finding. See Complaint at 27 and 

Plaintiff’s Supplemental Memorandum on the Buy-Side Case, at 2 [hereinafter Department of Justice Buy-Side Memo], United 

States v. Anthem, Inc., No. 16-1493 (ABJ) (D.D.C. 2017). 5 I am also concerned that Sycamore might use its increased buyer power to extract favorable non-price terms from suppliers to 

give itself preferential treatment over its rivals, further hampering vigorous competition. See Hemphill & Rose, supra note 3, at 

2103-2104. 6 In the Matter of Grifols, S.A., and Grifols Shared Services North America, Inc., C-4654, Sept. 18, 2018,

https://www.ftc.gov/news-events/press-releases/2018/09/ftc-approves-final-order-requiring-grifols-sa-divest-assets.
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seek to determine whether the reduced supply costs would be passed through to final consumers, 

since the reduction was caused by the merged firm’s increased market power.7

Here, it is possible there will be some legitimate resource savings that are not merely the result of 

increased market power on the buy side of the market, such as supply chain improvements. 

However, it is unclear whether these are substantial or even merger-specific. Moreover, while 

benefits to downstream consumers might be weighed against harm to suppliers as a matter of 

prosecutorial discretion, it is not a bulletproof defense as a matter of law.

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Vertical Concerns

The record evidence and the buyer’s track record suggest that Sycamore will have a strong 

incentive to rapidly increase margins to make a clear case to a potential future acquirer.9 Absent 

this transaction, Essendant cannot easily raise prices or reduce service to its dealers, because 

Essendant would lose sales either because dealers would switch to another wholesaler, such as 

S.P. Richards, or because the dealers would pass on price increases to their B2B customers, some 

of whom would then switch to competing dealers, including Staples. After this transaction, 

however, Sycamore would capture revenue from B2B customers that switch to Staples in 

reaction to a price increase or reductions in customer service from Essendant. This strategy 

seems even more likely given Sycamore’s actions to date since taking ownership of Staples.

The evidence in the record points to regional differences across markets in the country. The risk 

of steering to Staples will be particularly high in geographic markets where Essendant is the 

market leader.10 Regional managers incentivized on sales and operating margin targets will be 

particularly susceptible to this type of conduct. This is not nefarious – this is just obvious. 

The Commission has put great faith in its interpretation of the economic evidence to justify its 

conclusion. However, Commissioner Wilson rightfully notes in her statement that economic 

models are often more art than science. We must be humble about their predictive power, and 

this matter is a perfect illustration. The Commission’s economic model predicts competitive 

harm, but largely ignored regional differences. I agree with Commissioner Slaughter that our 

prediction likely underestimates the harmful effects. How can the majority confidently reach an 

accurate conclusion on the vertical effects of this transaction without a closer look at specific 

geographic markets where effective switching would be particularly difficult? 

 7 This competitive harm is within the purview of the Clayton Act and is well recognized in the 2010 Horizontal Merger 

Guidelines. Horizontal Merger Guidelines, supra note 3, at § 12 (“Example 24: Merging Firms A and B are the only two buyers 

in the relevant geographic market for an agricultural product. Their merger will enhance buyer power and depress the price paid 

to farmers for this product, causing a transfer of wealth from farmers to the merged firm and inefficiently reducing supply. These 

effects can arise even if the merger will not lead to any increase in the price charged by the merged firm for its output.”). See 

Sallet, supra note 3, at 84. See also Judge Millett’s opinion in United States v. Anthem, Inc.: “[I]ncreased bargaining power is not 

a procompetitive efficiency when doing so ‘simply transfers income from supplier to purchaser without any resource savings.’”

United States v. Anthem, Inc. 855 F.3rd 345, 371(D.C. Cir. 2017). 8 Case law supports the assertion that harm in one market cannot be offset by benefits in another. United States v. Philadelphia 

National Bank, 374 U.S. 321, 370-71 (1963); Department of Justice Buy-Side Memo, supra note 4, at 10 (citing Philadelphia 

National Bank for this conclusion). 9 Private equity firms generally take controlling equity stakes in firms with the hope of realizing significant gains through sale to 

a buyer or an exit through public markets.

10 While I was open to counterarguments that existing competitors could constrain these price increases, there was not conclusive 

evidence that allayed concerns about anticompetitive effects in regions where Essendant is the market leader. 
4

I am also less confident than the majority that Essendant-supplied dealers can easily switch to 

S.P. Richards to discipline any attempt by Sycamore to disadvantage Staples’s rivals. Record 

evidence indicates that some dealers have high switching costs. In addition, the majority’s 

conclusion that Staples is a poor substitute for Essendant-backed dealers seems to assume that 

the industry will operate as it has in the past, despite being known for rapid changes. If anything, 

there will be even greater change. 

Buyer Incentives

The Commission’s decision to wave through this transaction with few strings attached rests on 

an incomplete picture of the competitive landscape over the long term, since we did not conduct 

rigorous analysis on what the buyer plans to do post-purchase. 

Section 7 of the Clayton Act is a forward-looking statute, requiring enforcers to make certain 

predictions about how a transaction might change competitive dynamics in a market. We are 

much wiser when we consider the buyer’s plans and track record. This will also help us 

determine how other market participants will respond so we can analyze the impact on 

competition. For example, an investigation might uncover that a buyer who is a dominant player 

is purchasing a company that poses a threat to their dominance to shut off potential competition. 

This is just one example of many where a buyer’s plans have a major impact on competition.

In this matter, the buyer, Sycamore, is a well-known private equity fund specializing in retail and 

consumer investments. While some investment firms have strategies to invest substantial capital 

to grow and nurture a business, other investment firms might not have a strategy that is aligned 

with vigorous competition. Sycamore’s investment approach and track record suggest that the 

fund will operate assets much differently than a typical buyer, in ways that lead to higher 

margins, without any guarantee of greater output and service offerings.11 This is not the first time 

Sycamore Partners has come before the FTC. In 2015, the agency approved the fund as a 

divestiture buyer in the dollar store market. But Sycamore quickly resold the assets.12 The 

majority seems to believe we should wear blindfolds when it comes to this type of buyer 

evidence.

At a minimum, our failure to consider Sycamore’s incentives gives me less confidence in our 

ability to accurately predict the likely competitive outcome of this transaction using our 

traditional merger analysis tools.13 In addition, Sycamore and Staples have been buying up a 

range of companies in the supply chain, and this transaction will likely force the hand of its 

competitors to consolidate more quickly, leading to greater reductions in competition over the 

long term. Going forward, I hope the Commission can conduct in-depth analysis on buyer 

 11 See Khadeeja Safdar & Miriam Gottfried, How One Investor Made a Fortune Picking Over the Retail Apocalypse, Wall Street 

Journal, Mar. 21, 2018, https://www.wsj.com/articles/how-one-investor-made-a-fortune-picking-over-the-retail-apocalypse1521643491. 12 See Commission letter approving application filed by Sycamore Partners II, L.P. to permit Dollar Express to sell and assign 

stores and leases to Dollar General Corporation, In the Matter of Dollar Tree, Inc., and Family Dollar Stores, Inc., C-4530, April 

27, 2017, https://www.ftc.gov/news-events/press-releases/2017/04/ftc-approves-sycamore-partners-ii-lp-application-sell-323-

family. 13 Commissioner Slaughter’s statement argues for more retrospective analysis of consummated mergers. I agree, and it will be 

especially important to pursue these lookbacks when we have not carefully considered buyer-specific incentives.
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incentives and long-term market impact to inform how we can best exercise our prosecutorial 

discretion.

Abuse of Data

The Commission is codifying a firewall reportedly promised by Sycamore (regardless of any 

action on the Commission’s part), overseen by a monitor, to prevent Sycamore from exploiting 

commercially-sensitive data. Essendant’s business model gives it access to detailed data about 

the purchase history and usage for its dealers and their customers. Many B2B suppliers in the 

U.S., like Essendant, collect sensitive financial data in order to set sales terms. Dealers are 

rightfully concerned this data will be weaponized against them. In addition, if Staples can get its 

hands on how much end-users are currently paying through an existing dealer, it might bid less

aggressively for their business.

While the firewall will reduce the chance of misuse of data, it does not eliminate it. Given the 

hundreds of customers and resellers of Essendant, it may be difficult to police the firewall, 

especially with oral communications. We could have sought the return of detailed data to 

customers, who would be free to continue to keep their data with Essendant, but only if they 

chose to. If this data was portable, this could even reduce switching costs and foster competition, 

since prospective wholesalers could use the data to ensure proper service and customized 

offerings.

Conclusion

I agree with the Commission’s complaint that this transaction violates the Federal Trade 

Commission Act and the Clayton Act. The Commission’s proposed remedy takes steps to 

safeguard against some of the potential anticompetitive conduct stemming from the vertical 

aspects of this transaction. But, based on my review of the evidence, there are unresolved issues 

regarding other aspects of competition that may be harmed from this transaction. I am skeptical 

that this proposed settlement is in the public interest.

My colleagues voting in favor of this settlement acknowledge that it is critical for the 

Commission’s actions to be based on facts and sound analysis. But in this matter, the 

Commission is simply jumping to conclusions.