Commentary

FTC Wants To Stop Edgewell's Acquisition Of Harry's

The Federal Trade Commission intends to sue to stop the pending acquisition of shaving startup Harry’s by Edgewell Personal Care, which markets Schick and Edge razors and Wilkinson Sword blades, among other brands.

Or, as Financial Times’ Myles McCormick and Alistair Gray put it: “U.S. regulators are seeking to scupper Edgewell Personal Care’s planned purchase of shaving pioneer Harry’s on competition grounds, highlighting the obstacles facing legacy consumer goods groups as they try to revive growth through start-up acquisitions.”

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The FTC  charges “the loss of Harry’s as an independent competitor would remove a critical disruptive rival that has driven down prices and spurred innovation in an industry that was previously dominated by two main suppliers, one of whom is the acquirer,” in its news release about the administrative complaint filed in the U.S. District Court for the District of Columbia. 

The other supplier is, of course, Procter & Gamble, whose $57 billion purchase of Gillette in 2005 was the largest acquisition in its history. Last month, P&G announced plans to acquire Billie, a subscription-based, direct-to-consumer brand providing shaving and body care products to women, for an undisclosed price.

Edgewell agreed to buy Harry’s for for $1.4 billion last May “to access the direct-to-consumer model that’s shaking up industries from toothbrushes to socks by introducing new brands online, circumventing traditional retail,” Bloomberg’s David McLaughlin and Gerald Porter Jr. remind us.

“‘We are disappointed that the FTC is attempting to block our combination with Edgewell, and are evaluating the best path forward,’ Harry’s co-founders Jeff Raider and Andy Katz-Mayfield said  in a statement yesterday. Edgewell’s president and chief executive officer Rod Little said the company will review the FTC’s decision and respond in due course, according to the statement,” McLaughlin and Porter report.

“Harry’s was founded in 2012 by Raider, who is also a founder of the Warby Parker eyeglass brand, and Katz-Mayfield, a former Bain and Company consultant. The company raised hundreds of millions of dollars in venture capital and used some of those funds to buy its own German blade manufacturer. It also created the Flamingo women’s shaving brand in 2018. The co-founders were slated to run all of Edgewell’s brands in the U.S. following the acquisition, which also include the Banana Boat, Hawaiian Tropic, and Playtex consumer brands,” Jason Del Rey reports  for Vox.

“Harry’s is one of many ‘direct-to-consumer’ brands that have popped up over the past several years, launching first online and later expanding to traditional retail. Online roots provide unique customer insight and access, as well as the ability to offer cheaper prices without a middle man. Strictly selling online, though, can make broad expansion difficult and costly. By the time Harry’s announced its sale to Edgewell, it did roughly half its sales in stores like Target and Walmart. It expected to  ‘generally’ break even in 2019, Edgewell executives then told investors,” CNBC’s Lauren Hirsch writes.

“All of the FTC’s commissioners, three Republicans and two Democrats, voted in favor of the lawsuit, the latest signal that antitrust enforcers across the ideological spectrum remain willing to challenge deals that they believe could lead to higher prices for consumer staples,” Brent Kendall and Sharon Terlep write  for The Wall Street Journal.

“Despite the setback for the deal, Edgewell’s share price jumped on the news, rising 13% Monday. Investors were wary of the deal due to the high multiple Edgewell agreed to pay for Harry’s, which was growing quickly but losing money,” Kendall and Terlep add.

“The government’s concern over the merger has been heating up since August. As The Post reported exclusively last month, FTC officials have been asking ‘hard questions’ about the effect the deal could have on razor prices,” Lisa Fickenscher reports for the New York Post.

“In a last-ditch effort to avert a clampdown, Harry’s co-founder Raider insisted in a Jan. 16 blog post that Harry’s management would instead shake up the stodgy shaving industry and make it more competitive,” Fickenscher adds.

“‘Edgewell’s intellectual property, lower manufacturing costs and better distribution capabilities’ will help keep prices the same ‘or even lower,’ Raider wrote in the post on Medium. ‘The technology upgrades we intend to make with Edgewell will be a game-changer for our customers,’ he said.”

For now, however, you might say the deal has been nicked in the bud.

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