FTC Consent Order Remedies Likely Anticompetitive Effects of Procter & Gambles Acquisition of Gillette

The Federal Trade Commission today conditionally approved The Procter & Gamble Company’s (P&G) $57 billion acquisition of rival consumer products manufacturer The Gillette Company (Gillette), provided the companies divest a variety of overlapping assets ranging from toothbrushes to antiperspirant/deodorant (AP/DO) to ensure continued competition following the transaction.

Under a consent agreement with the FTC, P&G and Gillette will be required to divest
1) Gillette’s Rembrandt at-home teeth whitening business; 2) P&G’s Crest SpinBrush battery-powered and rechargeable toothbrush business; and 3) Gillette’s Right Guard men’s AP/DO business. In addition, P&G must amend its joint venture agreement with Philips Oral Health Care, Inc. (Philips) regarding the Crest Sonicare IntelliClean System rechargeable toothbrush.

“The terms of the Commission’s consent order address the product overlaps between these two large companies by restoring competition that would be lost as a result of the merger,” said Susan Creighton, Director of the FTC’s Bureau of Competition. “As a result, Americans who use these products will be protected from higher prices in the wake of this acquisition.”

The FTC’s Complaint

According to the complaint, P&G’s acquisition of Gillette would be anticompetitive and in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended. The FTC contends that the deal would lessen competition in the United States markets for at-home teeth whitening products, adult battery-powered toothbrushes, rechargeable toothbrushes, and men’s AP/DOs. The transaction as proposed would likely lead to increased prices for these products. The complaint also states that entry by a new competitor into each of the relevant markets is unlikely to deter the alleged anticompetitive impact of the transaction, as such entry would be difficult, time consuming, and costly.

The Staff’s Analysis

As explained in the analysis to aid public comment, staff applied the well-established approach of defining the appropriate product markets by focusing on overlap products and their potential substitutes and then analyzed the likely competitive effects of the proposed merger in each of those markets. Beyond that, staff also examined whether the combination of the two companies’ broad array of consumer products would be likely to have anticompetitive effects.

In particular, staff investigated whether the combined entity would have an increased ability to take advantage of its position as a so-called “category manager” or “category captain,” in order to obtain premium retailer shelf space and potentially exclude or disadvantage competitors in various broad categories, like oral care or AP/DO. The staff determined, however, that most retailers do not look at broad categories, like oral care and AP/DO, when they decide which products to stock and sell. Rather, they generally make decisions on individual products (e.g., men’s AP/DO), that are perceived to be close substitutes within these broad categories.

The Commission concluded therefore that the loss of competition between P&G and Gillette in broad categories is unlikely to cause competitive harm. It therefore focused its investigatory efforts on individual products, in which the companies were competitors, including at-home teeth whitening, battery-powered toothbrushes, rechargeable toothbrushes, and men’s AP/DO products, and sought relief in those markets.

Terms of the Consent Agreement

The consent agreement is designed to remedy the allegedly illegal anticompetitive impact of P&G’s acquisition of Gillette. It requires the companies to divest the Rembrandt business within three months and the Right Guard business within four months after the order becomes final. The buyer of each asset must be approved by the Commission, and if the companies cannot divest the businesses within the time required, the FTC may appoint a trustee to complete the divestitures.

The consent agreement contains a separate order to maintain assets that requires P&G and Gillette to maintain the viability of the Rembrandt and Right Guard businesses as competitive assets until they are transferred to Commission-approved buyers. The FTC has approved Edward Gold of PricewaterhouseCoopers as the Interim Monitor to ensure the company’s compliance with the consent agreement.

The consent agreement contains several provisions to ensure the successful divestiture of the Crest SpinBrush business to Church & Dwight, Co., Inc., the Commission-approved buyer of these assets. First, it requires P&G to divest the rights and assets relating to adult battery-powered and rechargeable toothbrushes, including research and development data, sales and marketing materials, and intellectual property. Second, P&G will provide Church & Dwight with a transitional license to the Crest trademark to use with the SpinBrush name. These provisions will ensure that Church & Dwight is able to transition the Crest SpinBrush family of products to a brand it chooses. Third, the agreement requires P&G to provide services to Church & Dwight for several months to ensure the continued viability of SpinBrush products.

Finally, the agreement requires P&G to amend its joint venture agreement with Philips regarding IntelliClean. The amended agreement allows Philips independently to market and sell IntelliClean and eliminates all non-compete provisions, allowing both P&G and Philips to develop and sell rechargeable toothbrush products in the future.

International Assistance

The European Commission (EC), Canada, and Mexico also reviewed this proposed merger. Throughout the course of their respective investigations, the FTC and the staff of the EC Competition Directorate, the Canadian Competition Bureau, and the Mexican Federal Competition Commission consulted and cooperated with each other under the terms of the respective cooperation agreements with each jurisdiction and 2002 U.S.-EC Best Practices on Cooperation in Merger Investigations.

The Commission vote to approve the complaint, consent order, order to maintain assets, and interim monitor agreement was 2-0-2, with Chairman Deborah Platt Majoras and Commissioner Pamela Jones Harbour recused. The order will be subject to public comment for 30 days, until October 29, 2005, after which the Commission will decide whether to make it final. Comments should be sent to the Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, consent agreement, order to maintain assets, and an analysis to aid public comment are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC File No.: 05-10115)