On Dec. 8, 2020, the Federal Trade Commission filed a complaint challenging the merger of The Procter & Gamble Company and Billie, Inc. According to the FTC, “the proposed acquisition would allow P&G, the market-leading supplier of both women’s and men’s wet shave razors, to buy Billie, a newer but expanding maker of women’s razors, and thereby eliminate growing competition that benefits consumers.” While many questions remain, particularly given that a public version of the complaint has not been released, the FTC’s decision to challenge the merger continues a recent trend by federal antitrust agencies of challenging anticompetitive mergers between dominant legacy firms and nascent competitors.
Overview of the Companies
Founded in 2017, Billie is a subscription-based, direct-to-consumer brand of women’s shaving supplies and body care products. Its target demographic is millennial and Gen Z women, attracting them through lower prices and greater convenience. Billie’s early investors include Goldman Sachs and tennis legend Serena Williams.
P&G, on the other hand, is a worldwide conglomerate that controls over 50% of the women’s razor market. Its catalog of brands includes Gillette Venus, Braun and Joy. P&G has lost market share in recent years to companies like Billie. According to journalist Andria Cheng, who covers the consumer, retail and cosmetics industries, disruptors in this space are gaining share among younger consumers who see them as "more authentic and relevant" than the legacy brands and leading to the conclusion that the trend of giants in the personal care industry acquiring nascent competitors "won't stop anytime soon."
P&G Chooses to Acquire Billie
Unable to prevent the sleeker, trendier startup from capturing market share, P&G did what many dominant legacy firms do – it eliminated the competitive threat through acquisition. As Ian Conner, Director of the FTC’s Bureau of Competition, explained, “Billie saw an opportunity to challenge P&G’s position as the market leader by finding underserved, price and quality conscious customers, and building an innovative brand,” and “[a]s its sales grew, Billie was likely to expand into brick-and-mortar stores, posing a serious threat to P&G. If P&G can snuff out Billie’s rapid competitive growth, consumers will likely face higher prices.”
The FTC is also concerned that consumers may also face less convenient purchasing options if the merger is consummated. For example, P&G appears to have adopted a direct-to-consumer option for its Venus brand in response to Billie’s success with this business model.
Challenge by FTC Not Surprising
The FTC’s decision to challenge the P&G/Billie merger was somewhat expected considering it challenged the analogous Edgewell/Harry’s merger in February 2020. Edgewell, like P&G, is a dominant men’s razor seller. Harry’s, like Billie, is a disruptive direct-to-consumer razor newcomer that was taking market share from legacy firms, especially in younger demographics. Even though the market share statistics did not trigger presumptions of illegality or increased market power under case law or agency guidelines, the FTC challenged the merger because losing 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.” The FTC concluded the merger would ultimately “inflict significant harm on consumers of razors across the United States.” The parties ultimately called off the merger shortly after the FTC filed its complaint.
Continued Focus on Acquisitions of Nascent Competitors Likely Good for Consumers and Competition
Modern disruptors are generally a boon for competition and consumers. These companies identify and serve a demand that existing firms do not, distinguishing themselves through lower prices, higher quality goods and services, and/or more innovative business models. For example, clothing company Bonobos and glasses company Warby Parker work directly with manufacturers and sell (primarily) directly to consumers, which enables them to offer greater convenience and lower prices by cutting out multiple markups during the sale process.
But these benefits are short-lived if legacy firms are permitted to acquire disruptors once they pose a competitive threat. This is particularly true where the dominant firm purchases the disruptor in a “killer acquisition,” i.e., an acquisition in which the acquirer purchases the target to shelve the product or service creating the competitive threat. While too early to label this a killer acquisition, the merger did halt Billie’s anticipated expansion into brick-and-mortar retail stores, which, according to the FTC, “would have benefitted consumers through intensified competition between Billie and P&G at retail locations.”
Antitrust commentators and certain lawmakers have argued for many years that the federal agencies needed to do more to identify and block these types of transactions. And, to their credit, the agencies appear to have taken notice. Over the past eighteen months, both the FTC and DOJ have challenged several acquisitions of nascent competitors by dominant firms, including: (i) Visa’s acquisition of Plaid; (ii) Sabre’s acquisition of Farelogix; (iii) Illimina’s acquisition of Pacific Biosciences; and (iv) Edgewell’s acquisition of Harry’s. Likewise, the FTC’s recent challenge of Facebook’s 2012 acquisition of Instagram and its 2014 purchase of WhatsApp, [add hyperlinks] while filed long after those deals closed, relies on similar theories of harm caused by taking out nascent competitors and rhymes with their shaving industry actions. Such challenges are important because they ensure consumers share in the benefits generated by successful disruptors.
Edited by Tom Hagy for MoginRubin LLP.
