This is a many to one mail merge and is complicated to achieve with a directory merge as you have discovered. However, you could use
http://www.gmayor.com/ManyToOne.htm using the first column as a key field and the second as a child field, naming the documents (one for each key change) with the first field.
If you want the documents combined then the current version of the add-in doesn't do that, but you can join them with
http://www.gmayor.com/Boiler.htm