Group opposes Maytag merger

Group opposes Maytag merger
 
Date January 18, 2006
Section(s) Local News
Brief  
 
By PETER HUSSMANN

Editor

The American Antitrust Institute has issued a white paper opposing the proposed merger of Whirlpool and Maytag, the two largest domestic manufacturers of home appliances.

In announcing its opposition, the non-profit advocacy organization based in Washington, D.C., noted that one of the most affected of home appliances markets impacted by the merger is laundry. There, the AAI warns that the proposed combination would severely concentrate markets, significantly lessen competition and harm consumers through higher prices, reduced choice and stifled innovation.

“American consumers have benefited from the price and quality competition, choice and innovation generated by competition between these two laundry giants. A merged Whirlpool/Maytag amounts to a wet rag for millions of consumers,” said Albert Foer, AAI’s president.

The Antitrust Division of the U.S. Department of Justice is currently reviewing the planned merger of the two U.S.-based appliance rivals. Whirlpool is offering to buy Maytag in a $21 a share cash and stock offer valued at $1.7 billion. In addition, Whirlpool is planning to assume nearly $1 billion in Maytag debt.

In a 17-page white paper based on independent review and publicly available information, the AAI’s Vice President and Senior Fellow, economist Diana Moss, noted that “while the effects of the merger on non-laundry home appliance markets are also worth looking into, the Institute has focused its efforts on the most adversely affected markets, including top-loading washers, front-loading washers and dryers.”

In a letter transmitting the paper to the Department of Justice Antitrust Division, the AAI urged that the merger be blocked, or at least be conditioned on significant divestitures of laundry assets.

Of particular concern, the white paper explains, is the market for top-loading washers — a unique “American” product for which there is no foreign competition. That market is dominated by Whirlpool and Maytag with only GE and Electrolux the remaining small rivals. No existing or prospective competition — domestic or foreign — the AAI argues, would discipline a post-merger price increase.

The paper suggests that the merged firm would have up to a 75 percent share of the top- and front-loading washer and dryer market. This translates into merger-induced increases in concentration that are significantly above and beyond the thresholds that would trigger serious competitive concerns in the Department of Justice/Federal Trade Commission 1992 Horizontal Merger Guidelines.

“Merger-induced increases in concentration of this magnitude raise concerns about post-merger behavior by a dominant Whirlpool/Maytag acting alone, as well as anticompetitive coordination among the few remaining competitors in the industry,” Foer said.

AAI said it was concerned about the post-merger marketing activities of the combined companies.

“Whirlpool/Maytag could successfully use their enhanced market power –even against powerful buyers like Lowes, Sears and Best Buy to demand more advantageous access to retail floor space and other forms of marketing support, edging out or foreclosing competitors,” Moss said.

The market power wielded by the merged company also could raise barriers to entry or expansion by rivals, particularly foreign firms who still have small market shares, AAI said in its report.

“Any claimed efficiencies would have to be merger-related, well-documented and enormous to overcome these anticompetitive concerns,” Foer said, stating that the AAI is skeptical that there is a convincing story for how the antitrust authorities could ignore a deal so clearly anticompetitive.

Late last week, two members of the Iowa congressional delegation sent a letter to Justice opposing the merger. Sen. Tom Harkin, D-Iowa, and Rep. Leonard Boswell, D-Iowa, also cited anticompetitive concerns in their opposition to the move. In addition, the pair said the deal could hurt job opportunities at Maytag facilities in Newton, Amana and North Liberty.

Maytag issued a statement on Friday saying the lawmakers were not taking into account the “fundamental competitive realities of the appliance industry.” The company also disputed the market share information the lawmakers used in the letter of opposition to the merger.

According to its Web site, the American Antitrust Institute is an independent, non-profit research, education, and advocacy organization with a mission is to increase the role of competition, assure that competition works in the interests of consumers and challenge abuses of concentrated economic power in the American and world economy. In a footnote included in the paper, it noted “among the AAI’s more than 100 contributors is at least one organization whose clients include an opponent of the Whirlpool/Maytag merger.” Attempts to contact the organization to identify the client were unsuccessful prior to press time.

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