The FTC Gives a "Quick Look" to a Merger
The fearless protectors of consumers at the Federal Trade Commission finally approved the takeover of men's clothier Jos. A. Bank by Men's Wearhouse last week. According to the terms of the agreement concluded way back on March 11, Men's Wearhouse will pay $65.00 per share and a total of $1.8 billion for its smaller rival. The merger will result in the fourth largest men's apparel retailer in the U.S. with combined annual sales of $3.5 billion and 1,700 stores nationwide. The combined company will retain the two separate brands and store chains. On the date the agreement was concluded, the stock prices of both companies rose, Men's Wearhouse's by 4.7% and Jos. A. Bank's by 3.9%. Bank's stock price rose 56 % from October 2013, when merger talks began, to the date of the merger agreement. The company is expected to realize $100-$150 million of cost savings annually over the next three years. This merger was a clear win-win for stockholders and consumers from the get-go.
It was evidently not so clear to the FTC, however, which began its expedited "quick look" investigation of the agreement almost immediately and elicited testimony from executives from both companies in the first two weeks of April. In closing its investigation and permitting the merger to proceed more than two months later on May 30, the FTC bureaucrats issued the following statement:
Despite limited competition from the Internet, the transaction is not likely to harm consumers because of significant competition from other sources. As in all transactions, FTC staff examined which product markets were likely to be affected and what the competitive landscape looks like in those markets. There were two such markets in this matter: (1) the retail sale of men’s suits and (2) tuxedo rentals. With respect to men’s suits, there are numerous competitors that sell suits across the range of prices of the suits the merging parties offer, including Macy’s, Kohl’s, JC Penney’s, Nordstrom, and Brooks Brothers, among others. The two firms also have different product assortments that reflect their different customer bases. Men’s Wearhouse, which sells branded and private-label suits, has a younger, trendier customer set, while Jos. A. Bank, which sells private-label suits only, has an older, more traditional customer base.
With respect to tuxedo rentals, Jos. A. Bank has been a small player in the market since its entry in 2010. Further, the parties compete with numerous local and regional tuxedo rental firms. Although both parties have a national footprint, the information we obtained showed that having a national presence is not a distinguishing or important factor for most customers. Instead, price of the rental, quality of the tuxedo, and customer service typically drive customers’ choices. Finally, evidence gathered during the investigation indicates that entry into the tuxedo rental market is fairly easy and inexpensive.
Well, to this I say, "Thank you Captain Obvious." As a casual shopper at these and other men's retailers and an infrequent renter of tuxedos, I could have told them all this in, oh, maybe 15 minutes. What is not so obvious is why taxpayers need a bunch of highly paid government economists and lawyers to tell us this at all.