Copyright Forbes
Kimberly-Clark is betting $40 billion that, despite the HHS Secretary’s unwarranted accusations about Tylenol, purchasing Kenvue will create synergies that will turn the combined company into a stronger competitor in the consumer health and consumer products sectors. Regardless of whether these gains are ultimately achieved, it is important that they are given the opportunity to try. Granting businesses and entrepreneurs the opportunity to constantly redefine the competitive environment drives economic growth. It leads to the creation of new and better products while simultaneously lowering costs for consumers. The logic behind the Kimberly-Clark and Kenvue merger is straightforward: management believes that their product portfolios are complementary. Combining these companies will, consequently, unlock potential gains including lower logistics, transportation, and distribution costs. These lower costs can then be passed forward, which will reduce the prices consumers will pay at the cash register. Leveraging the broader portfolio and increased scale, the new combined company will also be well positioned to generate additional efficiencies that will serve customers better and increase overall profitability. For example, the companies anticipate that the research and development efforts of the combined entity will be more efficient because each company has a different comparative advantage currently. Coupling these differences with the new organizations’ enhanced scale is expected to accelerate innovations and enhance the quality of the existing product portfolio. Of course, these benefits are speculative, and some investors may be skeptical that such efficiencies will arise. But such differences in opinion make a market. A core comparative advantage of the U.S. economy is the ability for companies to reorganize their operations based on the belief that an alternative business model will provide superior results. It helps to ensure that resources are allocated to their most efficient uses and that new ideas or innovations get an opportunity to prove their worth. It is through this process that the U.S. economy remains dynamic and continues to foster broad-based prosperity. The merger should not raise any regulatory concerns from a competitive market perspective, either. The two companies currently serve complementary markets. Kimberly-Clark’s serves household markets including personal care, consumer tissue, and professional products. Kenvue, on the other hand, is a pure-play consumer health company that sells self-care products and essential health items. Thus, any concerns that the merger enhances market power are ill founded. There are, in fact, several major competitors in the consumer goods and personal health products market including household names such as Procter & Gamble, Unilever, and Johnson & Johnson. The merged Kimberly-Clark–Kenvue company will become a more robust player that is better positioned to compete with these global giants. Perhaps more fundamental, the notion that regulators can judge the competitiveness of the market by simply counting the number of firms or market share of competitors is too simplistic. Take Blackberry as an example. In its time, the Blackberry was a major technological advancement. Because RIM (the company that created the Blackberry) figuratively built a better mousetrap, the world was beating a path to its door. At its zenith in the mid 2000’s, the Blackberry earned a 50% share of the U.S. market. Innovations stop for no company, however, and today Blackberry’s market share is nonexistent. Put differently, Blackberry’s dominant market share was not a sign of anticompetitive actions. It was a sign that the competitive process incentivized innovation. Just as important, when the company seemed to be amassing market power, that same competitive process undermined the company’s dominant position. This experience has relevance to the Kimberly-Clark/Kenvue merger. If the promise of the merger is borne out, then the merger improves competitiveness by increasing the ability of the combined firm to better serve customers. And it is the potential increase in consumer welfare that should be the ultimate arbiter of whether a merger improves the competitive environment. The policy implication for regulators is clear. The proposed merger should be approved because, if successful, it will improve the competitive environment. Approval of this merger by regulators would signal that U.S. antitrust enforcers are focused on improving market efficiency and increasing consumers’ welfare. The result will be a stronger U.S. manufacturing base, increased market competition, lower prices, and higher quality products. Letting companies grow through smart, strategic mergers is an important pathway for strengthening both our economy and consumer well-being. This merger has the potential to deliver real savings for American families and could be an indication that regulators are supportive of the dynamic competitive process necessary for promoting broad-based prosperity.
