Breaking News: Harkin, Boswell call on Justice to prevent merger

BREAKING NEWS: Harkin, Boswell Call on Justice Department to Prevent Whirlpool’s Acquisition of Maytag
 
Date January 12, 2006
Section(s) Local News
Special to Daily News

WASHINGTON, D.C. — In a letter to the Assistant Attorney General for Antitrust, Senator Tom Harkin (D-IA) and Congressman Leonard Boswell (D-IA) today called on the U.S. Department of Justice (DOJ) to prevent Whirlpool’s acquisition of Maytag. Specifically, Harkin and Boswell said the acquisition would give Whirlpool an unfair market advantage, and further increase the economic concentration of the appliance industry.

“I met with Ralph Hake, Maytag‘s CEO, Maytag employees, along with local officials last May to discuss this buy out,” said Boswell. “Along with the uncertainty of the future of the Newton plant, this proposed buy out may be bad for consumers across Iowa and the country. The Justice Department needs to thoroughly and quickly examine all the issues

“By letting Whirlpool’s acquisition move forward, the Justice Department would be encouraging unfair monopoly-like behavior in the appliance industry,” said Harkin. “This acquisition is a loss for Iowans, consumers nationwide, and Whirlpool’s competitors. It creates an unfair advantage, and I hope that it will be prevented.”

Whirlpool is already the largest producer in the appliance industry, and the Maytag acquisition would give them almost 50 percent of the market share. If the acquisition is approved, Whirlpool, GE and Electrolux would together control 94 percent of the market.

Specifically, the acquisition would have a heavy impact on the laundry segment of the appliance industry because a Whirlpool-Maytag company would control 70 percent of the market. The letter requests that if the acquisition is approved, the Justice Department at least require that Whirlpool divest Maytag‘s washer and dryer department, a very concentrated portion of the industry.

A copy of the letter is below:

Honorable Thomas O. Barnett

Assistant Attorney General for Antitrust

Department of Justice

950 Pennsylvania Avenue, NW

Washington, DC 20530

Dear Assistant Attorney General Barnett:

We are writing concerning the proposed acquisition of Maytag by Whirlpool. We are very troubled by this proposed arrangement which would greatly increase the market share of the combined company in certain areas. For that reason, we believe that the Department should prevent this acquisition.

According to the 1992 joint FTC-Justice guidelines for horizontal mergers, we believe it is clear that the appliance industry is indeed a highly concentrated one that would become drastically more concentrated, according to the Herfindahl-Hirshman Index, as a result of the Whirlpool acquisition. The increase in concentration is far beyond the level that the guidelines presume would likely create enhanced market power or facilitate its exercise.

Whirlpool is already the largest producer in the market. With the acquisition of Maytag, the combined company would hold almost 50 percent of the market share. This market concentration becomes even more extreme when the other two major appliance manufacturers, GE and Electrolux, are considered. If the Whirlpool acquisition is approved, the newly combined company, GE and Electrolux would together control about 90 percent of the market share.

And, this is an industry that has undergone a number of substantial mergers in recent years. Maytag acquired Magic Chef, Jenn-Air and Amana. Whirlpool acquired Kitchen-Aid, and Electrolux acquired Frigidaire. At some point, the concentration becomes to extreme for an orderly competitive market. We believe the pending acquisition of Maytag by Whirlpool goes beyond that barrier particularly in the area of washers and dryers.

What is most important is the specific market for particular goods that people actually buy. In the laundry segment, a Whirlpool — Maytag Company would control an excessively dominant 70 percent of the market. It is hard to see how that type of dominance does not place excessive market control into the hands of one company.

Even with the large share of this market that is sold at retail by large chain stores, this concentration is extreme. Clearly, a combined Whirlpool would be in a position to create real difficulties for competitors. The increase in concentration is far beyond the level that the guidelines presume would likely create enhanced market power or facilitate its exercise.

While we are seeing some movement of foreign firms into this area such as LG and Samsung, their market share is very small. The current domestic players are working to sharply lower costs including off-shoring jobs to lower costs. It is not at all clear that the foreign firms will be able to effectively compete and may in fact decide to maximize their efforts in their home markets.

We recommend that the Justice Department prevent the acquisition of Maytag by Whirlpool. If that is not done, at the very least the Department should require that Whirlpool divest the washer and dryer portions of Maytag to a viable purchaser who will have the financial capability and desire to continue to operate that business.

We appreciate your consideration of our concerns.

Sincerely,

Tom Harkin

Leonard Boswell

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: