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

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Graham Mayor - MS MVP (Word) (2002-2019)
Visit my web site for more programming tips and ready made processes www.gmayor.com