What happens when a consumer products giant with a stable of established and trusted but not-exactly-buzzy brands meets a burgeoning shaving start-up – a “younger, nimbler competitor born of the internet and predicated on reaching consumers in new ways,” as the New York Times put it? The former sets out to buy the latter for $1.37 billion dollars in furtherance of a trend of big guys buying newer, smaller, often direct-to-consumer guys. That is the story of Edgewell Personal Care and Harry’s – or part of it, at least.
The two companies made headlines this spring when it was revealed that Edgewell Personal Care – which owns a stable of household names from Playtex and Skintimate to shaving brands Schick Edge and Wilkinson Sword – would acquire Harry’s, the 7-year old, New York-headquartered shaving company founded by Andy Katz-Mayfield and Jeff Raider, and its sister brand Flamingo. Harry’s made its name by selling razors, shave gels, face washes and lotions on a purely subscription basis – until it signed on to stock its products in Target stores across the country and Walmart after that – to male consumers by way of its namesake brand. Thereafter, it launched Flamingo, a line of razors and waxes for female consumers.
Shelton, Connecticut-based Edgewell, on the other hand, got its start in 2015 when battery behemoth Energizer spun off its household products brands – including 248-year old British-born sharing company Wilkinson Sword, sunscreen company Banana Boat, and Wet Ones, the hand sanitizer company – into a separate entity.
“We’ve had an interesting product portfolio, Rod Little, Edgewell’s chief executive, told the Times in May 2019, “but we’ve lacked a way to communicate with the consumer.” That is where Harry’s – complete with its Highsnobiety collaboration and J. Crew tie-ups – and Flamingo come in.
The parties began discussions in March 2019 and by early May, the deal was struck. In a joint release dated May 9, Edgewell and Harry’s boasted that their merger would “create a complementary portfolio of global brands built for the modern consumer and powered by world-class omni-channel capabilities.” Bloomberg cited analysts and product strategy execs, who looked favorably upon the combination of “the brand affinity of Harry’s” and the sheer “scale” of Edgewell’s operations. Meanwhile, Wells Fargo analyst Bonnie Herzog wrote in a note that “strategically the deal makes sense.”
“For the next six months, there were few concerns at either company,” according to Axios, with the $1.37 billion deal approved by both companies’ boards in May 2019 and expected to close by March 31, 2020. As part of the deal, the two Harry’s founders join the executive team of Edgewell as co-presidents of the company’s U.S. operations.
As the closing date inched closer, though, problems began to arise in the form of market regulators, and this week, the Federal Trade Commission (“FTC”) took action. The federal government entity – which is tasked with “enforcing antitrust laws” and “challenging anticompetitive mergers and business practices that could harm consumers by resulting in higher prices, lower quality, fewer choices, or reduced rates of innovation,” among other things – filed an administrative complaint, asserting that it has “reason to believe that Edgewell Personal Care Company and Harry’s, Inc. have executed a merger agreement in violation of [various sections] of the FTC Act,” as well as the Clayton Antitrust Act.
According to the FTC’s February 3 complaint, “Harry’s successful 2016 leap from online, direct-to-consumer sales into brick-and-mortar retail stores interrupted over a decade of routine price increases by a once-stable duopoly” between Edgewell and the larger Procter & Gamble. As the FTC cites in its complaint, “Purchasers of razors were, as Harry’s founders put it, tired of ‘overpaying for overdesigned razors,’” and the startup “saw an opening: a market ripe for disruption and an untapped platform—the Internet—on which to disrupt.”
“This interruption,” according to the FTC, “has led to lower prices and new product offerings for razor consumers.” And just as Harry’s and other new companies likes Dollar Shave Club were able to disrupt the consistency at which “P&G and Edgewell raised their prices ever higher,” a merger between Harry’s and Edgewell “would neutralize one of the most successful challenger brands ever built,” thereby, “eliminating head-to-head competition between Harry’s and Edgewell, and removing the independent competitor that disrupted Edgewell and P&G’s longstanding and stable duopoly.”
In a statement following the filing of the FTC’s administrative complaint, Daniel Francis, the Deputy Director of the FTC’s Bureau of Competition, said, “The Harry’s and Flamingo brands represent a significant and growing competitive threat to the two firms [Edgewell and P&G] that have dominated the wet shaving market for decades. Edgewell’s effort to short-circuit competition by buying up its newer rival promises serious harm to consumers.”
The agency revealed this week that its vote to issue the administrative complaint was 5-0, as was its vote to authorize FTC staff to file a complaint with the U.S. District Court for the District of Columbia seeking a temporary restraining order and a preliminary injunction in order to “maintain the status quo pending an administrative trial on the merits.” The administrative trial is scheduled to begin on June 30, 2020.
As for the response from potential merger and mergee, Edgewell CEO Rod Little said, “We continue to believe the combination of our companies would bring together complementary capabilities for the benefit of all stakeholders, including customers.” Harry’s founders and co-CEOs Jeff Raider and Andy Katz-Mayfield, revealed, “We are disappointed that the FTC is attempting to block our combination with Edgewell and are evaluating the best path forward. We believe strongly that the combined company will deliver exceptional brands and products at a great value and are determined to bring those benefits to consumers.”
Little said that the companies “will review the FTC’s decision and respond in due course,” and they are expected to fight back against the FTC’s pending merger block, one that Modern Retail says “caught many in the consumer startup world off guard, considering that Unilever acquired Dollar Shave Club for $1 billion more than three years ago, while Procter & Gamble announced in January that it intended to acquire women’s subscription shaving startup Billie.”
Meanwhile, Axios says that the agency’s action suggests that it is either “missing the boat on direct-to-consumer” … or it is “actually its way of testing the limits of omnichannel retail, maybe as a precursor to future actions against giants like Amazon. But no matter the backstory, this one will come down to the numbers — particularly pricing — and each side thinks it has the data to prove its case.”
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