Politics

FTC aims to block Edgewell's $1.37 billion acquisition of shaving start-up Harry's over competition concerns

Key Points
  • The Federal Trade Commission announced plans to sue to block Edgewell's $1.37 billion acquisition of shave club company Harry's.
  • The FTC said an administrative trial will begin June 30.
  • Edgewell and Harry's said their companies are reviewing the FTC's decision and will respond.
Harry's products on display at Target's Herald Square store.
Courtney Reagan | CNBC

The Federal Trade Commission said Monday it plans to sue to block Edgewell's $1.37 billion acquisition of shaving start-up Harry's, citing competition concerns in the consumer shaving space.

The agency argues that the shaving industry needs upstarts like Harry's to keep giant companies like Gillette owner Procter & Gamble and Schick maker Edgewell in check.

The deal, announced last May, would give Edgewell access to Harry's data and subscription base. For Harry's, it would provide a platform through which to expand beyond its nine factories.

"For many years, Edgewell and Procter & Gamble operated their respective Schick and Gillette brands of men's razors, and Intuition/Hydro Silk and Venus brands of women's razors, as a comfortable duopoly characterized by annual price increases that were not driven by changes in costs or demand," the FTC alleged.

"By bringing the disruptive Harry's under Edgewell's control," it added, "the proposed acquisition would eliminate important and growing competition among suppliers of wet shave razors, and would inflict significant harm on consumers of razors across the United States."

Edgewell President Rod Little and Harry's co-CEOs Jeff Raider and Andy Katz-Mayfield said their companies are reviewing the FTC's decision and will respond. 

"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," the two Harry's CEOs said in a statement. 

Harry's is one of many "direct-to-consumer" brands that have popped up over the past several years, launching first online and later expanding to traditional retail. Online roots provide unique customer insight and access, as well as the ability to offer cheaper prices without a middle man. Strictly selling online, though, can make broad expansion difficult and costly. By the time Harry's announced its sale to Edgewell, it did roughly half its sales in stores like Target and Walmart. It expected to be "generally" breakeven in 2019, Edgewell executives then told investors.

The FTC announcement caught some industry insiders by surprise, given Harry's small hold of the razor market and precedent for similar deals. Harry's rival Dollar Shave Club was acquired by Unilever in 2016 for about $1 billion. P&G announced plans to acquire direct-to-consumer women's shaving brand Billie earlier this year, for an undisclosed amount.

In 2018, Harry's had a 2.6% share of the U.S. razor market, according to Euromonitor.

The action is not the FTC's first recent move to object to smaller consumer deals. In December, it challenged Post Holdings' $110 million acquisition of Treehouse Foods' private label cereal business, and in 2018, it challenged Conagra's $285 million acquisition of Wesson Cooking Oil.

The FTC is chaired by Joseph Simons, who was appointed by President Donald Trump. The committee prohibits more than three of its five commissioners from being in the same party. It falls under the executive branch but is independent and also reports to Congress.

The FTC said Monday an administrative trial is scheduled to begin on June 30.

Shares of Edgewell on Monday were up nearly 8% Monday, giving it a market capitalization of $1.4 billion. Year-to-date, shares of the company are down nearly 10%.

As part of the proposed acquisition, Edgewell would give Harry's shareholders an 11% stake in the combined company and pay the remaining deal value in cash.

Shares of P&G, meantime, were mostly flat Monday, giving it a market capitalization of $307 billion. Shares of the owner of Pampers and Vicks are down a less than 1% year-to-date, with net sales growth last quarter falling short of expectations.

While P&G's shaving business has rebounded more recently, it has been a sore spot for the company. The company took an $8 billion charge related to Gillette last July.

"More recently and much less of an impact, new competitors have entered at prices below the category average," CFO Jon Moeller said at the time.

CNBC's Amelia Lucas contributed to this report.