While the tech and startup world awaits results of the US government’s antitrust investigations of Big Tech, the government’s main antitrust enforcement agency just made a surprise decision: to break up Big Razor.
The FTC announced on Monday that it would seek to block Edgewell, the parent company of the Schick razor brand, from purchasing the startup razor company Harry’s in a $1.37 billion acquisition that was announced last May. The proposed deal marked one of the biggest acquisitions of a so-called digital-native consumer brand and was seen as proof in startup circles that disruptive retail brands could have successful financial outcomes without going public.
But in a statement on Monday morning, the FTC announced that it would sue to block the deal, saying the deal “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.”
Harry’s co-founders Jeff Raider and Andy Katz-Mayfield said in a statement that they were “disappointed” by the decision “and are evaluating the best path forward.”
“We believe strongly that the combined company will deliver exception brands and products at a great value, and are determined to bring those benefits to consumers,” they added.
(Update: Edgewell announced on Monday, February 10, that it was abandoning the Harry’s acquisition in the face of the FTC suit. “We continue to be perplexed by the FTC’s process and disregard of the facts,” Harry’s said in a statement to the Wall Street Journal.)
The decision comes as the tech and startup world is focused on the FTC and other government arms for a very different reason: their antitrust probes into Amazon, Apple, Google, and Facebook. But the FTC’s competition division is responsible for evaluating proposed acquisitions and mergers across all business industries, from technology to pharmaceutical to, yes, razors.
In evaluating the deal, the FTC looked at competition in what is called the “wet shave” market — basically, razors used for face-shaving but not including electric razors. It’s not yet clear how the FTC may have defined the relevant market beyond that for this merger evaluation.
According to the research firm Euromonitor, Gillette held 47 percent of the US men’s razor market in 2018, with Edgewell’s brands, which include Schick and Wilkinson Sword, combining for 13.6 percent of the industry. The Harry’s brand, which started selling online but now has a large presence in both Target and Walmart stores, had just a 2.6 percent share at the time, according to Euromonitor.
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 US following the acquisition, which also include the Banana Boat, Hawaiian Tropic, and Playtex consumer brands.
One source familiar with the FTC’s review process for this merger told Recode that the commission did not include Dollar Shave Club in the market it evaluated to reach its decision. Dollar Shave Club owned 8.5 percent of the US market in 2018, according to Euromonitor, and is owned by Unilever, following a $1 billion acquisition in 2016. Dollar Shave Club has not historically manufactured its own blades, while Harry’s does.
(Clarification: Dollar Shave Club was determined by the FTC to be a predominantly online seller and therefore not relevant to this decision.)
The commission also focused exclusively on so-called shave systems, which include razor handles used with disposable blades, and did not include disposable razors, where you use and toss both the handle and blade, the source said.
According to the FTC’s complaint published Monday afternoon, the agency saw Harry’s arrival in brick-and-mortar retail chains — first Target and later Walmart — as the main impetus that forced Edgewell to lower prices on its Schick razors.
“In the end, competitive pressure generated by Harry’s successful launches at Target and Walmart defeated Edgewell’s plan to maintain ... prices,” the FTC complaint alleges. “By the end of 2018, Edgewell had reduced its ... prices significantly.”
The FTC also alleges that Harry’s launch of its women’s shaving brand Flamingo in 2018 also led to “preemptive price cuts” from Edgewell on its own women’s line of shaving systems.
“The Proposed Acquisition is anticompetitive because it will eliminate the growing competition between Harry’s and Edgewell that has been highly beneficial to consumers.”
An FTC spokeswoman declined to comment on questions from Recode that aren’t answered in the complaint.