Why the FTC Is Going After Big Razor — Instead of Big Tech
What the halting of the Harry’s acquisition says about the future of mergers — and the startups hoping to cash out
For two years, a rising drumbeat in Washington has called for increasingly dramatic action to weaken the power of big companies in pharmaceuticals, agriculture, and especially technology. This week, the Federal Trade Commission acted, but with a surprising target — Big Razor.
In a lawsuit Monday, the FTC sued to stop Edgewell, the company that owns Schick, from buying Harry’s, a mostly direct-to-consumer e-commerce razor company that in just a few years has helped to upend the multibillion-dollar shaving industry. It’s a massive blow to both the seven-year-old startup, co-founded by one of the Warby Parker co-founders, and the consumer product goods company, which owns staid brands including Hawaiian Tropic and Playtex. The marriage would have meant a financial exit and path for growth for the venture-backed startup, and fresh leadership at Edgewell, which was planning to anoint Harry’s’ co-founders as co-presidents of the company’s entire U.S. operations.
The move appears to signal that the federal government is back in the anti-merger game after some four decades of lax antitrust enforcement. In a report today, the Wall Street Journal described an expanding Justice Department antitrust probe of Google, too. But analysts say they are skeptical about any far-reaching action by the FTC or the Justice Department against the large technology companies, which numerous politicians, especially Democrats, have urged be broken up, or other large prey.
“Hopefully this is the start of a revival of merger law,” Sandeep Vaheesan, legal director at the Open Markets Institute, an anti-monopoly advocacy group, said of the FTC suit on Harry’s. But the Trump administration has so far taken a relatively passive approach to the tech giants, Vaheesan said. By comparison, most of the states last September joined forces to investigate Google. On Tuesday, representatives of the states met with Justice Department officials in a possible plan to combine efforts, but Vaheesan said the initiative remains outside Washington. “It is possible they join forces but the states are acting mainly because they see DOJ and FTC as sitting on their hands,” he said in an email.
The FTC appears to have reasoned that the easiest way to maintain the pressure on large companies to hold down prices and improve their products is by breaking up the Harry’s acquisition.
Leading Democrats including Sen. Elizabeth Warren and Sen. Bernie Sanders have called for regulatory action including the breakup of companies such as Facebook and Google. In recent weeks, Facebook in particular has aggravated its already-stressed relations in Congress by deciding not to censor political ads that spread falsehoods.
Vaheesan said that much of the broad economy has concentrated industries, and that shaving is a less-conspicuous duopoly that pits Gillette against Schick’s owner, Edgewell. Gillette is by far the largest player, with more than half of the razor market. In 2016, Unilever stepped into the fray by buying Dollar Shave Club, an early competitor of Harry’s, for a whopping $1 billion.
Dollar launched in 2011, and Harry’s a year later. Both razor e-commerce upstarts took off by treating the incumbents Schick and Gillette like the duopoly they were, Dollar undercutting them on price, and Harry’s on quality and branding. Last year, Edgewell announced a deal to pay $1.37 billion for Harry’s. It marked the latest in a string of acquisitions by large consumer merchandisers of their younger disruptors. For many of these venture-funded upstarts, it’s offered a more attractive path to cashing out than going public, which is becoming increasingly fraught for a segment with tough economics.
In challenging the merger, the FTC, however, appears to have reasoned that, with Dollar swallowed up by Unilever, the easiest way to maintain the pressure on large companies to hold down prices and improve their products is by breaking up the Harry’s acquisition. “The lawsuit is a way of preserving Harry’s as a vigorous competitor,” Vaheesan said. “The razor market is a good example of how concentration is found in unexciting, mundane parts of the economy, too.”
In a statement, Edgewell CEO Rod Little said, “We continue to believe the combination of our two companies would bring together complementary capabilities for the benefit of all stakeholders, including customers. We will review the FTC’s decision and respond in due course.”
This story corrects to show that Unilever does not own Gillette.