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Oligopoly Watch
The latest maneuvers of the new oligopolies and what they mean

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  Unilever washes out US laundry products biz
  
  Anglo-Dutch personal and home care giant Unilever announced it would sell its US detergent and laundry products business to equity company Vestar Capital Partners. The price is $1.45. The brands involve include such standbys as All. Surf, Snuggle, and Wisk.
  
  The move is part of a long campaign by Unilever to simplify its product liens and cut out slow-growing lines of business, in the face of a 25% stock decline over the year. While it has chopped away in previous years, it has pledged a total of over $3 billion in sell-offs this year. (Just recently, the company sold off some olive oil brand Bertolli in Europe this month.) Unilever will keep selling detergent outside the US. Especially, Unilever is working in India and other emerging companies, where sales are growing fast.
  
  According to an article in The Financial Times ('Unilever hangs on to European laundry list," 7/28/08)

  Unilever has strong positions in emerging markets, controlling about 70 per cent of the laundry market in Brazil, 80 per cent in Argentina, 80 per cent in South Africa and 40 per cent in India. About two-thirds of its laundry sales now come from emerging markets.

  We don't usually cover equity investments, but this is a little different. Among the 65 companies it has investments in, ranging from Birds Eye Food to Solo Cup Company, it also owns Huish, a US company that is the #1 maker of store-brand detergents in the US, as well as selling its own discount detergent under the Sun brand. Because of this, the acquisition begins more to look like a strategic move, building a detergent giant in the US to compete with #1 Procter & Gamble.
  
  For Unilever and companies like it, hallowed brands that don't perform are simply ballast to be unloaded as quick as possible, even while it adds new brands and SKUs a at any amazing rate in growth areas.
  

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  Drug oligopoly windfall
  
  According to a report from Democratic congressional staff for the Oversight and Government Reform Committee in the US Congress, major drugmakers received a $3.7 windfall over the past two years, thanks to the way that their lobbyists wrote the rules for Medicare reimbursement.
  
  The bonanza comes from a shift in laws passed in 2006, which shifted six million Medicaid (the health plan for poor people) to Medicare (the health care plan for people over 65), in its Part D prescription drug coverage. That program, passed at in 2003, was notorious in not allowing for price negotiation between the government (the biggest market for a number of pharmaceuticals) and the big drug companies, something Medicaid is allowed to do. The result was a cost increase to taxpayers of 30 percent.
  
  Committee chairman Henry Waxman is quoted as saying: "The drug manufacturers have been paid billions more for the drugs used by the dual eligible beneficiaries than they would have been paid if the dual eligible had continued to receive their drug coverage through Medicaid."
  
  The biggest gainers included drug giants Johnson & Johnson, Abbot Laboratories, and Bristol-Myers Squibb, both of which took in hundreds of millions more than they had the previous year thanks to the changes.
  
  Not surprisingly, committee Republicans, the Bush administration, and drug lobbyists all disagreed, praising the workings of the "free market." Free indeed, if you assume that buyers are not allowed to bargain with sellers by law.  It's the kind of thing on the best lobbying can buy.
  
  (Source: "Medicare Part D a boon for drug companies, House report says" Los Angeles Times, 11/25/08)
  
  

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  America for sale: Insurance department
  
  Here's yet another major acquisition of an American company from a foreign country. Tokio Marine Holdings, the #1 casualty insurance company in Japan, announced its deal to buy out US casualty insurer Philadelphia Consolidated Holding. The deal is for $4.7 billion in an all-cash deal. It would be the largest acquisition ever by a Japanese insurance company.
  
  The move is part of a trend of Japanese insurers to diversify out of Japan, where expansion opportunities are limited. Tokio Marine has spent about $2 billion buying insurers in China and the UK since 2002. The US casualty insurance market is currently quite unconsolidated with up to 2,000 companies in the business. But there's a lot of stress on that business, with lots of claims from recent climate-related disasters, so there may be come real pressure to consolidate.
  
  Before the move, Tokio Marine was the world's 13th largest non-life insurance company. This move will push it up in the rankings.  This deal is not a very large one in the insurance industry, but it is indicative of the temptation at the relatively low cost of profitable US businesses.
  
  

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  UK grocery acquisition
  
  The tight UK grocery market just got tighter. The Co-operative Group announced it will buy rival Sommerfield for $3.2 billion. The deal will add 900 stores in the current 2,200, all in the UK. It will also increase the new company's market share in the UK to 8%.
  
  Co-op is in sad position of being #5 in a market dominated by foot top competitors, namely Tesco, Asda (Wal-Mart), Sainsbury, and William Morrison control about 75% of the market. Of those, Morrison is the closest to Co-op, with 11% market share.
  
  The company has its work cut out for it. Its prices are significantly higher than Tesco and Asda. Just as food and energy prices are spiking. It is assumed that a larger size will give it more flexibility in prices.
  
  Co-op is a different kind of company. As the name implies, it's based on a profit-sharing food cooperative founded in 1844 by weavers during the Industrial Revolution. That structure, called a mutual company in Britain, is still in effect, and the members get annual dividends. And it is more than a food market, according to an article in The Independent ("Co-op gears up for big 4 battle," 8/17/08).

  Beyond its operation as a traditional food seller, the Co-op has the largest funeral services business and third largest pharmacy business in the UK. It also competes in the travel and legal markets, which all come under the umbrella of the Co-operative Trading Group.
  
  

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  Israel's generics king strikes again
  
  Israel-based Teva Pharmaceutical Industries, the world's #1 generic drug maker, announced the purchase of a big competitor, US-based Barr Pharmaceuticals. The deal is for $7.5 billion in cash and stock.
  
  Barr allows Teva to expand in the growing Eastern European market and also is a maker of contraceptives. The deal will also boost Teva to 24% market share in generics in the US. Barr had bought Croatian drugmaker Pliva in 2006 for $2.5 billion.
  
  The deal will be the second-largest generics deal, following Teva;s purchase of Ivax in 2006. It's another step in the steady consolidation of what is mostly a commodity business, but one that has growing returns as national health plans and insurers see more and more of the drugs they need to treat common chronic illnesses coming off patent. In generics, global presence and scale of operations are big factors, as the margin per prescription is low.
  
  Other recent big generics deals include US-based Mylan bought Germany-based Merck KGaA's generics unit in 2007 for $6.9 billion. Japan's Daichi Snakyo recently bought India's Ranbaxy Laboratories for $4.6 billion. Sanofi-Aventis of is now trying to buy Czech-based Zentiva.
  
  

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  Trash that waste deal!