- The takeover of razor startup Harry & # 39; s fell apart this week after a government agency sued to block the sale of $ 1.4 billion to the Edgewell conglomerate.
- The Federal Trade Commission argued that the buyout would have removed one of the most successful challengers in an already consolidated market.
- It is argued that Procter & Gamble, the champion of the razor market, has played a role in winding up the business. A source familiar with the Harry takeover said when Procter & Gamble bought another shaving startup earlier this year, it forced regulators to intervene and remedy the situation.
- Procter & Gamble did not immediately respond to a request for comment.
- You can find more stories on the Business Insider homepage.
Harry & # 39; s, a razor startup, may have lost its buyer because the government tried to kill the sale of $ 1.4 billion to a competitor.
But there is some speculation that Harry's major rival, Procter & Gamble, shares responsibility for the breakup of the deal.
In February, the Federal Trade Commission sued Harry & # 39; s for Schick owner Edgewell for antitrust reasons on the grounds that the sale would neutralize one of the most successful challengers in an already highly concentrated market. Gillette from Proctor & Gamble had a monopoly on the sale of razors – until disruptors such as Dollar Shave Club and Harry & # 39; s arrived dropped its market share from 70% to a decade ago about 50%,
A person with direct knowledge of Harry's acquisition talks said this at Procter & Gamble bought another shaving start In January, the deal "built" a story about consolidation in the razor market. The result forced regulators to intervene and stop Harry's sale. (The latest acquisition of Procter & Gamble is still pending.)
The source, whose identity we have confirmed, described the acquisition of Procter & Gamble as "Jiu-Jitsu" to try to enforce the problem. The startup Billie he bought makes razors for women and competes with his own women's razor brand Joy.
"The Billie thing was clearly an attempt to have his cake and eat it too," said this person about Procter & Gamble's move. "You can win a young competitor … or you can block us."
The source asked for anonymity as he was not authorized to publicly discuss Harry's acquisition talks.
It is not uncommon for a company to respond to a competitor's acquisition with a similar transaction to offset a competitor's profits. According to a cartel specialist, the potential to suppress the competitor's deal through government intervention is "just the icing on the cake".
"I would not be surprised if this were part of the calculation," said a lawyer who practices antitrust law in a leading law firm and asked for anonymity. "I can tell you, if you think about chess with your competitors and think about what the FTC will do in your business, think about other M&A businesses out there. When I’m Procter & Gamble, I'm focusing on the deal Schick announced with Harrys. "
Procter & Gamble declined to comment.
Spencer Rascoff, an angel investor and co-founder and former CEO of Zillow, came up with a different idea. He told Business Insider that he would not be surprised if Proctor & Gamble had filed a brief objection to the deal. It is standard for to interview the government agency Company employees or other people with industry knowledge as part of the review. He recalled that the Federal Trade Commission spoke to "dozens" of Zillow's competitors after the company made plans to buy Trulia.
In one Tweet threadRascoff referred to the complaint from the government agency citing the CEO of Procter & Gamble and said that the proposed acquisition of Harrys "is not a significant threat to the Gillette brand."
"Perhaps P&G tried to sabotage Edgewell's takeover of Harry with these comments," Rascoff said in a tweet.
"If so, played well."
The "Cola Wars" offer a case study
There are precedents for companies that buy other companies to block a competitor's acquisition. The "Cola Wars" offer the most relevant case of corporate jiu-jitsu.
In 1986, a merger had spread between the two best-selling soda companies, Coca-Cola and Pepsi. Pepsi agreed to buy a smaller soft drink rival, 7-Up, to increase its market share. A month later, Coca-Cola, which had a larger market share, countered with a deal to Dr. Buy Pepper, If the acquisitions had gone through, the two giants would have controlled 80% of the soda market.
At the time, some analysts said that the proposed acquisition was Coca-Cola Part of an action to torpedo the Pepsi deal. They argued that if regulators approved the previous deal, they could not reject the similarly sized Coca-Cola deal.
"I suspect the Coca-Cola Pepper deal was more or less a threat to the FTC: & # 39; If you don't stop Pepsi, we will force you between what you do and what we do do, distinguish do, "" a former government official with direct knowledge of antitrust policy told the Los Angeles Times in February 1986.
It is not an effective strategy
Edgewell's planned acquisition of Harry’s would have strengthened sales and market share, just as the Pepsi deal would have made it a more profitable competitor.
Edgewell, the smaller of the two conglomerates, had a 15% share of the wet razor market in 2018 compared to Gillette's half. according to Nielsen data, Harry's had increased his stake to 6% that year.
The buyout would also have brought Harry & # 39; s co-founders into control of Edgewell's domestic business, which includes razor, chic, intuition and skintimate manufacturers as well as the sun protection brands Banana Boat and Hawaiian Tropic. Edgwell said to the shareholders that the duo would introduce a "modern approach to branding" that would help its portfolio brands connect with a new generation of consumers.
It is likely that Procter & Gamble saw the deal as a threat to its dominance.
However, claiming to have snapped up Billie for an undisclosed amount to block Harry's deal is difficult to prove, said two cartel specialists.
Steve Salop, a professor at Georgetown Law who teaches antitrust courses, said Procter & Gamble had "independent reasons" to buy a razor company that appeals to a base of younger consumers. Billie brings a lively direct-to-consumer brand in the fold.
Buying a company to prevent another acquisition is also not a very effective strategy, said the antitrust lawyer, who asked to remain anonymous. The Federal Trade Commission is "too unpredictable" to assume that it can be manipulated.
The government agency said it could not comment on a particular investigation. In one public opinionDaniel Francis, deputy director of the agency's competition office, celebrated his result.
"Edgewell and Procter & Gamble have had little competition on the store shelves for years, and prices have risen as a result," Francis wrote. "The arrival of Harry & # 39; s in brick-and-mortar retail disrupted this pattern and brought consumers lower prices and more options. If Edgewell had taken control of this disruptor by taking over Harry & # 39; s, it would be a major step backwards for been the competition. "
Salop also pointed out that the schedule does not support the argument that Procter & Gamble bought a company to stop a rival's deal. The Billie sale took place about eight months after Schick owner Edgewell announced the takeover of Harry & # 39; s.
"If P&G was just trying to throw a wrench into Schick's deal to buy Harry's, why did it wait so long to announce its transaction?" Said Salop.
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