(Mike Larson is en route to Europe for a conference hosted by the German-language publisher of the Safe Money Report. Mark Najarian, managing editor of Money and Markets, is filling in.)
Many have expressed those concerns after the recent spate of mega-mergers in various segments of the economy has threatened to reduce, or is in the process of reducing, the amount of choices we have.
The latest move came out of the drug-store industry when Walgreens Boots Alliance Inc. (WBA) said it will buy rival Rite Aid (RAD) in a $17 billion deal (including acquired debt). The price will be $9 a share, a 50% premium to where RAD had been trading. But away from investors’ portfolios, it will also combine the second- and third-largest drug-store firms into one company, meaning that it, along with No. 1 player, CVS Health Corp. (CVS), will dominate an industry once featuring hundreds of smaller, mom-and-pop owned corner drug stores.
Walgreens said it will retain the Rite Aid name for now, but that doesn’t help keep the idea of competition alive. According to USA Today, CVS has 58.1% of the market share. Walgreens will have 41.4% after absorbing Rite Aid, leaving a fractional proportion to all other pharmacy/drug-store retailers. How’s that for competition?
|Are we in danger of losing our choices? Or do we have too many choices already?|
The massing of retail assets comes after several moves in the health insurance industry. Aetna Inc. (AET) is in the process of combining with Humana Inc. (HUM) in a $37 billion deal, while Anthem Inc. (ANTM) has proposed to buy Cigna Corp. (CI) in a $54 billion transaction.
Those insurance deals, as important as they are, could fly under the radar of consumers, but they have become issues in the 2016 presidential race, with Hillary Clinton saying she has “serious concerns” about the mergers. “As we see more consolidation in health care, among both providers and insurers, I’m worried that the balance of power is moving too far away from consumers,” the Democratic frontrunner said.
Clinton also said that, if elected president, she would toughen antitrust regulation and appoint “aggressive regulators” to fight industry concentration. “I am very skeptical of the claim that consumers will benefit from them because the evidence from careful studies shows that too often the companies end up pocketing profits rather than passing savings to consumers,” she said.
Health care and related industries aren’t the only ones facing these issues. Cable TV and broadband providers are also looking to hook up, saying it will cut costs and help consumers. But they have faced difficulties and have even been thwarted in their efforts. In April, Comcast Corp. (CMCSA) abandoned plans for a $45 billion merger with Time Warner Cable (TWC) after regulators indicated opposition to the deal and consumer advocacy groups protested that it would reduce competition and choice.
Technology, auto parts and even beer companies are also in the process of consolidating into mega-firms.
|“Health care and related industries aren’t the only ones facing these issues.”|
The antitrust division of the U.S. Justice Department is scrutinizing the Aetna-Humana and Anthem-Cigna mergers. Regulators will definitely examine the Walgreens-Rite Aid deal.
My hope is that they take a serious look at all mergers to make sure that competition and the benefits it brings – such as innovation, better customer service and reasonable prices – doesn’t die. I worked in Europe for more than 20 years, and America certainly has more competition than any country I lived in, with many sectors dominated by one major player. But that led to government intervention in other ways. For instance, many countries set limits on what times of the year large stores could hold sales and how much they were allowed to discount prices, along with restricting regular opening hours and days, all with the idea of protecting the family owned businesses still operating.
I would prefer that stores be able to set their own prices and hours, but do it in the face of enough competition.
To be fair, the consolidators have a response to the criticism. For instance, in the health-care industry, many say that the Affordable Care Act (Obamacare) is provoking companies to scale up to get better pricing, and companies like Walgreens and Rite Aid say by merging, they can better negotiate drug prices and pass on those savings. Increased regulatory requirements makes it more difficult for smaller companies to compete, they say. Companies in other sectors say that, by combining, they can reduce administrative and other costs and pass those savings on to consumers.
What about you? I know the thought of government intervention is complete anathema to many of our readers, but do you favor strict scrutiny of mergers that could reduce competition? Or would you prefer the free market to reign? Have you made a financial killing on a big merger? (RAD shares surged on the announcement but fell back today on antitrust regulation risk.) Jump to the website to add your comments.
Mike Larson is on his way to Germany for the annual investment conference hosted by the publishers of the German-language version of the Safe Money Report. He will be back next week to respond to your comments on all subjects. Click here to add your views.
We couldn’t avoid mentioning the Fed altogether today, of course. In its “placeholder” meeting today, it left rates unchanged. But many analysts are reading the statement to indicate a slightly higher chance of a rate hike at the December meeting.
Another debate? Yes, the Republicans gather tonight for the third offering of their group discussions, this time in Colorado. The theme will revolve around business issues, so it’s only fitting that it will be broadcast on CNBC. Along with candidates hoping for big things from tonight’s event, CNBC is also hoping to raise its profile and profits, although it appears many people might have debate fatigue: The first one on Fox drew 24 million viewers; the second on CNN had 22.9 million; but this one is likely to draw much less – and it will be going against Game 2 of the World Series.
Surprise! A new study shows that there’s a major gap between what corporate chief executives have put away for retirement and what their workers have been able to squirrel away. On average, the retirement accounts for Fortune 500 CEOs hold $49.3 million. American workers, meanwhile, average $2,500, according to the Center for Effective Government and the Institute for Policy Studies. Are you closer to the CEOs or the average American worker?
Remember, you can share your comments on competition, the Fed, the CEO savings gap, the debate or any issue with your fellow readers. Click here to add your view.
(Mike Larson, editor of the Safe Money Report, is away.)