UPDATE: February 10, 2020: Edgewell on Monday announced that it has terminated its merger agreement with Harry's in light of the FTC's actions against it, according to a press release furnished to the Securities and Exchange Commission. The consumer product conglomerate also disclosed that "Harry's has informed the company that it intends to pursue litigation," which Edgewell said "has no merit."
In an emailed joint statement, Harry's co-founders and co-CEOs Jeff Raider and Andy Katz-Mayfield didn't address whether they are suing, but said they are "perplexed by the FTC's process and disregard of the facts" and that they believe they would have won the FTC case. "We know the merger would have benefited consumers greatly. We believe we would have prevailed in litigation, and are disappointed by the decision by Edgewell's board not to see this process to its conclusion," they also said.
The Federal Trade Commission on Monday said that it's suing to block a proposed acquisition of Harry's shaving brand by Schick owner Edgewell, arguing that it would "eliminate one of the most important competitive forces in the shaving industry" and "inflict significant harm on consumers of razors across the United States."
The FTC filed the complaint through its own administrative law system and has also authorized a temporary restraining order and preliminary injunction to be lodged in federal court "to maintain the status quo pending an administrative trial on the merits," according to its press release.
Jeff Raider and Andy Katz-Mayfield, co-founders and co-CEO's of Harry's, and Edgewell CEO Rod Little disputed the FTC's reasoning, saying in statements that the merger would be beneficial to customers and that the companies are evaluating their options. They announced their planned $1.37 billion cash and stock transaction last May.
DTC companies have depended on venture capital to grow. For many, profitability has been elusive and several have turned to the public markets or corporate takeovers to forge a path to scale.
"A lot of exits we've seen have been through M and A," Nisha Dua, co-founder and partner of VC firm BBG Ventures, told an audience at the National Retail Federation's annual conference in January.
That's been true in the grooming space, a traditional consumer product category that has been shaken by direct-to-consumer upstarts. Dollar Shave Club, founded nearly two years before Harry's, was the initial disruptor of a men's shaving market that was reliant on retailers to sell razors on the cheap and blades at a high premium. Unilever four years ago grabbed that brand, and its talent and e-commerce chops, reportedly for $1 billion. Last month Procter & Gamble bought women's grooming brand Billie, after scooping up Walker & Company Brands (a startup focused on grooming and hair care for people of color, including shaving brand Bevel) in 2018.
It seems like a well-worn path, so the FTC's objections to the Harry's-Edgewell deal led to some head shaking. In addition to Schick, Edgewell Personal Care Company runs shaving brands Wilkinson Sword, Edge, Personna and Skintimate. Harry's also runs Flamingo, a women's grooming brand.
"No objections were raised when Unilever bought Dollar Shave Club. So it's kind of odd," Paula Rosenblum, managing partner at RSR Research, told Retail Dive in an email. "I am not so fond of all the M&A that has been going on, to be honest, but rule 1 when you start a business, DTC or otherwise, is to have an exit strategy. It's part of the entrepreneurial game."
Harry's has created a customer-focused brand whose appeal goes beyond price, according to Matt Sargent, senior vice president of retail at consulting firm Magid. "You see this trend of larger companies purchasing these entities, and what they're buying is not necessarily a profitable business model," he told Retail Dive in an interview. "They're buying the understanding and the inner workings of how a company can work with its customers and understand its customers in a less friction-dependent way."
While the FTC's objection is focused on price, the agency is likely concerned that the superior customer experience at Harry's could get diluted if it were part of a conglomerate stable, he said. But, without some way of reaching scale, Harry's on its own could also potentially disappear from the market, he also said. Then again, nobody is stopping legacy consumer product companies or retailers from taking friction out of their customers' experience.
"Yes these companies have built new paradigms, but the question is — should that not have resided within the walls of an Edgewell or a P&G? That's the interesting part," he said. "You have to be willing to change."