Federal Trade Commission v. Procter & Gamble Co.

1967-05-22

Headline: Court upholds FTC order requiring Procter & Gamble to divest Clorox, ruling product-extension mergers can be blocked when they raise entry barriers and advertising-driven market power.

Holding: The Court held that Procter & Gamble’s acquisition of Clorox violated Section 7 of the Clayton Act and reversed the Sixth Circuit, ordering enforcement of the FTC’s divestiture order because the merger likely lessened competition.

Real World Impact:

Affirms FTC order requiring Procter & Gamble to divest Clorox assets.
Treats 'product-extension' mergers as subject to antitrust blocking when competition likely lessened.
Emphasizes premerger market structure over limited post-merger behavior in merger review.

Topics: mergers and competition, antitrust enforcement, company forced sale, advertising and market power, market entry barriers

Summary

Background

The Federal Trade Commission charged that Procter & Gamble bought the assets of Clorox in 1957 in a way that might substantially reduce competition in the market for household liquid bleach. Clorox was the national leader with about half the sales; many other producers were small and regional. Procter was a far larger maker of detergents and soaps with huge advertising advantages. The FTC examiner ordered divestiture, the Commission after further hearings affirmed that order, and the Sixth Circuit dismissed the complaint before the case reached the Supreme Court.

Reasoning

The Court asked whether the acquisition was likely to substantially lessen competition under Section 7 of the Clayton Act (a law that bars mergers likely to reduce competition). The Court agreed with the Commission that this was a “product-extension” merger and that replacing Clorox’s resources with Procter’s much larger advertising and distribution power could raise barriers to new entry, discourage existing rivals, and make oligopoly more rigid. The Court found the Commission’s factual findings supported by the record, reversed the Court of Appeals, and directed enforcement of the FTC’s divestiture order.

Real world impact

The ruling forces Procter & Gamble to unwind the Clorox acquisition if the Commission’s order is enforced and signals that large firms cannot evade antitrust review simply by calling acquisitions product extensions. The decision emphasizes premerger market structure and likely future effects over narrow reliance on post-merger behavior when evaluating such deals.

Dissents or concurrances

Justice Harlan concurred in the result but warned that product-extension and conglomerate mergers require finer standards and careful weighing of claimed efficiencies before inviting broad enforcement under Section 7.