The U.S. Department of Justice filed a civil antitrust lawsuit Wednesday afternoon to stop the pending $3.3 billion sale of GE Appliances to Swedish firm Electrolux.
The DOJ said the acquisition would combine “two of the leading manufacturers of ranges, cooktops and wall ovens sold in the United States, eliminating competition that has benefited American consumers through lower prices, and more options.”
Deputy Assistant Attorney General Leslie C. Overton said if Electrolux bought GE Appliances, millions of Americans would be vulnerable to price increases for a range of household appliances.
“This lawsuit also seeks to prevent a duopoly in the sale of these major cooking appliances to builders, and other commercial purchasers, who often pass on price increases to buyers or renters,” she said.
GE has defended the deal and issued a statement yesterday, in anticipation of the suit, seeking to take its case public. This afternoon, the company reaffirmed that stance.
“GE was notified today that the Department of Justice has initiated court proceedings seeking to enjoin the sale of GE Appliances to Electrolux,” the company said. “Electrolux and GE intend to vigorously defend the proposed acquisition as pro-competitive and pro-consumer. Our goal remains to close the deal this year. GE continues to believe that GE Appliances’ customers, consumers and employees will benefit from Electrolux’s commitment to the appliance business and its ability to compete with global competitors.”
The suit was filed in the U.S. District Court for the District of Columbia.
*****UPDATE 4:20 p.m.*****
IL has obtained a copy of the DOJ’s antitrust complaint against Electrolux and GE. In it, the DOJ argues the proposed merger would decrease the number of major suppliers of cooking appliances from three — GE, Electrolux and Whirlpool — to two, Electrolux and Whirlpool, creating a “duopoly.”
“The result would be less competition, higher prices, and few options for millions of Americans who buy major cooking appliances each year,” according to the complaint.
Together the “big three” control over 90 percent of the domestic sales of major cooking appliances.
To prove the anti-competitive nature of this merger, the DOJ used numbers from the Herfindahl-Hirschman Index, which measures market concentration and is widely accepted by economists as a way to evaluate how vigorous markets are.
Under the guidelines issued by the DOJ and the Federal Trade Commission, markets where the HHI values are over 2,500 are considered “highly concentrated,” and acquisitions that increase HHI values by over 200 points in concentrated markets are “presumed likely to create or enhance market power,” said the DOJ suit. Here is a graphic of what the DOJ said this buyout would do to the cookware markets in the U.S.:
In a public statement released today, Electrolux said it would “contest vigorously” the DOJ’s effort to block its purchase of GE Appliances. It also disagreed with the DOJ’s assessment that this deal would harm competition, saying it would instead give consumers a “greater choice of high quality products.”
Electrolux also said the antitrust suit is hypocritical as the DOJ approved Whirlpool’s acquisition of Maytag in 2006. In the statement, Keith McLoughlin, CEO of Electrolux, said this acquisition “accelerates consumer innovation, which improves the industry as a whole, and results in more consumer choice than ever.”
Electrolux also said the deal has obtained regulatory approval in Brazil, Canada, and Ecuador.
*****UPDATE 5:10 p.m.*****
In a 4:15 p.m. conference call with reporters on Wednesday, Electrolux attorney Joe Sims said he found the DOJ’s complaint “unusual,” and that Electrolux is both amenable to working with regulators to make a more palatable deal for GE and ready to go to court should negotiations go nowhere.
He said the DOJ’s complaint had an almost exclusive reliance on numbers, with little context for the real world, and disregarded the history of past successful mergers. He added such numbers are not good indicators of “what could happen.”
Sims took issue with the DOJ’s claim that the merger would make the cooking appliance market uncompetitive, saying domestic markets are the most open in the world. He also said large-scale customers of such products — including retailers like Best Buy, Sears and Lowe’s — have enormous bargaining power and control 80 percent of sales. He called their leverage to wrest better prices “considerable.”
Sims also claimed the 2006 merger of Whirlpool and Maytag in the washing appliance division proved that when large competitors merge, it doesn’t have to lead to higher prices and lower quality, claiming prices have since gone down for these appliances “in real terms” as quality has gone up.
“There’s no reason to think the result of this transaction would be any different,” he said.
It’s also not too late for talks to lead to a settlement, and keep the deal alive. “We would be willing to come to some acceptable accommodation with the DOJ if it was,” he said, adding “it takes two to tango.”
As for a timeline, Sims said he expected the deal to close by the end of the year.
In an email to IL, University of Louisville business professor David Dubofsky said there are ways for the company to appease federal regulators.
“The DOJ can stop mergers and acquisitions when the are perceived to be anti-competitive, when one firm will get too much market power,” he said. “Often there are ways to restructure the deal to make the DOJ happy.”