Procter & Gamble and Billie have called off their previously-announced merger on the heels of the Federal Trade Commission (“FTC”) filing an administrative complaint – and authorizing a federal lawsuit – against Proctor & Gamble in order to stop the multinational consumer goods giant’s proposed acquisition of shaving startup, Billie. According to a release from the FTC dated December 8, P&G’s acquisition of the 3-year old shaving company would enable it “to eliminate growing competition that benefits consumers,” and thus, should be prohibited on anticompetitive grounds.
Fast forward a few weeks and the two companies say that they are going their separate ways. “We were disappointed by the FTC’s decision [to oppose the deal] and maintain that there was exciting potential in combining Billie with P&G to better serve more consumers around the world,” the companies said in a joint statement on Tuesday.
Addressing the FTC’s move to block P&G’s acquisition of Billie, FTC Bureau of Competition director Ian Conner said in a statement that the government agency – which is tasked with policing unfair, deceptive or fraudulent practices in the marketplace, and enforcing federal antitrust laws that prohibit anticompetitive mergers and other business practices that “could lead to higher prices, fewer choices, or less innovation” – voted to challenge the merger “because it would have eliminated dynamic competition from Billie.”
It is significant in the eyes of the FTC that while New York-based Billie’s share of the shaving market is relatively small, the budding young company – which has put an aim to counter the notorious “pink tax” that results in an upcharge on products traditionally intended for/marketed to women at the center of its brand – “targets customers who are tired of paying more for comparable razors.”
Interestingly enough, the FTC’s action to halt the Billie acquisition was not the first of its kind in 2020. In fact, the government agency filed an administrative complaint in February, asserting that it has “reason to believe that Edgewell Personal Care Company and Harry’s, Inc. executed a merger agreement in violation of [various sections] of the FTC Act,” as well as the Clayton Antitrust Act. As it turns out, Edgewell, the shaving company that owns a stable of household names from Playtex and Skintimate to shaving brands Schick Edge and Wilkinson Sword, had made Harry’s a $1.37 billion dollar offer, and the burgeoning direct-to-consumer (“DTC”) shaving company took it.
As we stated in a previous article about the FTC’s opposition of the Billie deal, the two shaving-centric blockades should not necessarily be too surprising, since over the past several years, federal antitrust agencies, including the FTC, have been judging M&A deals through a “nascent competition” lens, and opposing deals in which the acquisition target is a small, but rapidly growing entity – or a “disruptive” competitor of a larger, dominant company. This stands in contrast with the longstanding approach taken by antitrust agencies, in which they traditionally examine the current level of competition between – and the respective market share levels of – the merging parties in order to determine if there are antitrust issues at play.
In short: the larger the market shares of the merging companies, the more likely there will be FTC pushback on the basis of competition, and thus, small share gains – such as 2.5 percent – have traditionally fallen outside of the realm of FTC activity. However, regulatory action over the now-defunct Harry’s-Edgewell and Billie-P&G deals, in which both of the acquisition targets maintained relatively small stakes in the relevant market, stands in contrast with that approach, and highlights the FTC’s enduring willingness to look beyond a purely market share-centric analysis to consider the disruption capabilities and growth potential of a small player in the market.
Ultimately, the breakdown of the respective Harry’s and Billie deals provide some relevant takeaways for others in the DTC space, particularly in light of looming concerns about what this growing pattern of FTC actions means for similarly situated companies.
Reflecting on the two deals gone awry, Baker & Hostetler LLP’s Ann O’Brien, Linda Goldstein, Marc Schildkraut and Alyse Stach state that the FTC’s actions drive home the point that “market disruptors, especially those challenging large incumbent competitors through marketing and advertising, may be viewed by regulators as strong potential competitors likely to restrain competitor market power,” and that DTC advertising, marketing and pricing practices “could significantly impact how the FTC views a prospective merger.”
This is noteworthy – albeit unsurprising – given that innovative DTC marketing tactics (whether that be the mission-driven and community-centric messaging that has saturated the space starting with the likes of Warby Parker, TOMS, etc., or the consistent and all-encompassing use of inherently-Instagrammable branding elements, something that Glossier, for one, has mastered), and pricing strategies (i.e., lower pieces as a result of DTC entities cutting out the middle man) have proven central to the allure and the success of these younger upstarts. This is especially relevant given that many DTC darlings’ products are not earth-shatteringly different than those of their much more established competitors.
The fact of the matter is that there is a double-edge sword in the mix as a result of DTC players’ ability to lure consumers – and thereby, compete with much larger rivals – in ways that may have been formerly unimaginable pre-internet (and likely pre-social media, as well) via effective marketing efforts and pricing metrics. As such, the very things that have enabled DTC brands to thrive may be the things that prevent them from being bought out. In other words, O’Brien, Goldstein, Schildkraut and Stach assert that “disruptive brands that successfully challenge the competition through advertising and more competitive pricing may inadvertently weaken their ability to be acquired if regulators take an adverse view regarding that activity.”
As such, they caution DTC players that “these competing goals will need to be carefully balanced,” and companies need to be “mindful of how regulators might perceive that activity” should they be angling for a buyout. They also note that the blocked Billie merger firmly suggests that things like the pink tax and nascent competitors’ ability to address the pink tax – as well as other competitive advantages that DTC entities bring to the table – “are issues on the FTC’s radar,” and thus, they should be issues that DTC players and larger acquiring entities keep in mind in an M&A context, as well.