- The acquisition of razor startup Harry’s fell apart this week after a government agency sued to block the $1.4 billion sale to conglomerate Edgewell.
- The Federal Trade Commission argued that the buyout would have removed one of the most successful challengers in an already consolidated market.
- There’s an argument being made that Procter & Gamble, the razor market’s champion, had a role in the deal falling apart. A source familiar with the Harry’s acquisition said when Procter & Gamble bought a different shaving startup earlier this year, it forced regulators to step in and mitigate.
- Procter & Gamble did not immediately respond to a request for comment.
- Visit Business Insider’s homepage for more stories.
Harry’s, a razor startup, may have lost its buyer because of a government move to kill the $1.4 billion sale to a competitor.
But there’s some speculation that Harry’s bigger rival, Procter & Gamble, shares responsibility for the deal falling apart.
The Federal Trade Commission in February sued to block Schick owner Edgewell’s acquisition of Harry’s on antitrust grounds, arguing that the sale would neutralize one of the most successful challengers in a market that’s already highly concentrated. Proctor & Gamble’s Gillette had enjoyed a monopoly on razor sales — until the arrival of disruptors like Dollar Shave Club and Harry’s caused its market share to tumble from 70% a decade ago to about 50%.
One person with direct knowledge of the Harry’s acquisition talks said that when Procter & Gamble bought a different shaving startup in January, the deal “built a narrative” around consolidation in the wet shave razor market. The result forced regulators to step in and stop the Harry’s sale. (Procter & Gamble’s more recent acquisition is still pending approval.)
The source, whose identity we confirmed, described Procter & Gamble’s acquisition as corporate “jiu-jitsu to try to force the issue.” The startup it bought, Billie, makes razors for women and competes with its own female-focused razor brand Joy.
“The Billie thing was pretty clearly an attempt to have its cake and eat it, too,” this person said of Procter & Gamble’s move. “They get to acquire a young competitor … or they get to block us.”
The source requested anonymity because he was not authorized to speak publicly about the acquisition talks at Harry’s.
It’s not unusual for a firm to react to an acquisition by a competitor by making a similar transaction, in order to match a rival’s gains. The potential to squash the competitor’s deal through a government intervention is “just icing on the cake,” according to one antitrust specialist.
“I would not be surprised if that was part of the calculus,” said an attorney who practices antitrust law at a leading firm, who requested anonymity. “I can tell you when you’re thinking about the chess game with your competitors, and you’re thinking about what the FTC is going to do in your deal, you’re also thinking about other M&A deals out there. If I’m Procter & Gamble, I am laser-focused on the deal that Schick announced with Harrys.”
Procter & Gamble declined to comment.
Spencer Rascoff, an angel investor and a cofounder and former chief executive of Zillow, floated a different idea. He told Business Insider he wouldn’t be surprised if Proctor & Gamble had submitted a brief opposing the deal. It’s standard practice for the government agency to interview company personnel or others with knowledge of the industry as part of its review. He remembered the Federal Trade Commission spoke to “dozens” of Zillow’s competitors after the company made plans to buy Trulia.
In a tweet thread, Rascoff pointed to the government agency’s complaint where it quoted the chief executive of Procter & Gamble, saying that the planned acquisition of Harry’s “does not create a significant threat” to the Gillette brand.
“Maybe P&G was trying to sabotage the Edgewell acquisition of Harry’s with those comments,” Rascoff said in a tweet.
“If so, well played.”
Options trading The ‘cola wars’ provide a case study
There is precedent for companies buying other businesses to block a competitor’s acquisition. The “cola wars” provide the most relevant case of corporate jiu-jitsu.
A merger frenzy had spun up between the two largest-selling soda companies, Coca-Cola and Pepsi, in 1986. Pepsi said it had agreed to buy a smaller soft-drink rival, 7-Up, in a bid to increase its market share. One month later, Coca-Cola, which had a greater market share, countered with a deal to buy Dr Pepper. If the takeovers had gone through, the two giants would have controlled 80% of the soda market.
At the time, some analysts said Coca-Cola’s planned acquisition was part of a plot to torpedo the Pepsi deal. They argued that if regulators approved the earlier deal, it couldn’t reject the Coca-Cola deal, which was similar in size.
“My guess is that the Coca-Cola-Pepper deal was more or less a threat to the FTC that, ‘If you don’t stop Pepsi, then we’ll force you to make a distinction between what they are doing and what we are doing,'” a former government official with direct knowledge of antitrust policy told the Los Angeles Times in February 1986.
Options trading It’s not an effective strategy
Edgewell’s planned acquisition of Harry’s would have bolstered sales and its market share, just as the Pepsi deal would have made it a more viable competitor.
The smaller of the two conglomerates, Edgewell had 15% of the wet shave razor market in 2018, compared to Gillette’s half, according to Nielsen data. Harry’s had grown its share to 6% that year.
The buyout also would have put the Harry’s cofounders in control of Edgewell’s domestic business, which includes wet shave razor manufacturers Schick, Intuition, and Skintimate, as well as sunscreen brands Banana Boat and Hawaiian Tropic. Edgwell told shareholders that the duo would bring a “modern approach to brand building,” helping its portfolio brands connect with a new generation of consumers.
It seems likely that Procter & Gamble saw the deal as a threat to its dominance.
However, the allegation that it scooped up Billie for an undisclosed amount in an attempt to block the Harry’s deal is hard to prove, said two antitrust specialists.
Steve Salop, a professor at Georgetown Law who teaches courses in antitrust law, said Procter & Gamble would have “independent reasons” for wanting to buy a razor company that appeals to a base of younger consumers. Billie brings a buzzy direct-to-consumer brand into the fold.
Buying a business to thwart another acquisition is also not a very effective strategy, said the anti trust attorney who requested to remain anonymous. The Federal Trade Commission is “too unpredictable” to assume it can be manipulated.
The government agency said it could not comment on a specific investigation. In a public statement, Daniel Francis, a deputy director of the agency’s Bureau of Competition, celebrated its outcome.
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“For years, Edgewell and Procter & Gamble faced little competition on store shelves, and prices rose steadily as a result,” Francis wrote. “The arrival of Harry’s into brick-and-mortar retail disrupted that pattern, bringing lower prices and more options to consumers. Allowing Edgewell to bring that disruptor under control by acquiring Harry’s would have represented a big step back for competition.”
Salop also pointed out that the timeline doesn’t support the argument that Procter & Gamble bought a company to scuttle a rival’s deal. The Billie sale came about eight months after Schick owner Edgewell announced its acquisition of Harry’s.
“If P&G were simply trying to throw a monkey wrench into Schick’s deal to buy Harry’s, why did it wait so long to announce its transaction?” Salop said.
Do you work at Harry’s or Billie and want to share your story? Contact this reporter using a non-work device by email at email@example.com or Twitter DM at @meliarobin. Message for Signal.
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