DOJ seeks to break up online ratings merger - The Deal Pipeline (SAMPLE CONTENT: NEED AN ID?)
Subscriber Content Preview | Request a free trialSearch  
  Go

Regulatory

Print  |  Share  |  Reprint

DOJ seeks to break up online ratings merger

by William McConnell In Washington  |  Published January 11, 2013 at 10:49 AM
The Department of Justice filed a lawsuit Thursday seeking to break up Bazaarvoice Inc.'s June 2012 acquisition of PowerReviews Inc., its closest rival in the business of providing online customer reviews for retailers.

The DOJ alleged that the $168.2 million transaction "substantially lessened competition in the market for product ratings and reviews platforms in the United States, resulting in higher prices and diminished innovation." The department claimed that the acquisition of PowerReviews has given Bazaarvoice incentive and ability to raise the price of its product ratings and reviews platform above a competitive level. As a result of the transaction, many retailers "have lost critical negotiating leverage and are vulnerable to anticompetitive price increases," DOJ said.

The government's lawsuit was filed in the U.S. District Court for the Northern District of California in San Francisco and seeks an order requiring Bazaarvoice to divest sufficient assets, either those originally held by PowerReviews or some other combination of the merged company's assets, to "create a separate, distinct, and viable competing business that can replace PowerReviews competitive significance in the marketplace."

In a prepared statement Bazaarvoice officials said they will fight the DOJ in court, where they "expect to be fully vindicated."

"We are disappointed with the filing of today's lawsuit," the company said. "We provided the DOJ with extensive documents, data, and information demonstrating that our acquisition of PowerReviews was procompetitive and did not result in a lessening of competition. We spent more than six months explaining that there is robust and ample competition in the market for social commerce engagement tools. We disagree with the DOJ's decision to ignore that evidence and we will now shift our attention to a court of law."

Online industry sources have said the company will likely argue that larger players such as Google Inc. are expected to enter the business and negate any competitive harm posed by the merger. Recent antitrust precedent would give Bazaarvoice some traction against the DOJ if Google is really planning to enter the market. In 2010 the Federal Trade Commission was set to challenge, coincidentally, Google's planned $750 million takeover of AdMob, the largest provider in the budding market for applications that enable Web advertising in mobile devices., but as the investigation neared completion, Apple Inc. announced it would get into the market and the FTC became convinced that competition for mobile ad applications would remain sufficiently robust.

The DOJ insisted, however that newcomers to the business are not likely to provide enough competition to replace the pricing pressure lost with PowerReviews. "Entry or expansion by other firms is unlikely to alleviate the competitive harm caused by the transaction," the DOJ said. Other providers already exist, "but they have struggled to win customers and gain market share." A new entrant would face a "formidable barrier" to breaking into the business because of the growing strength of Bazaarvoice's platform. As the company's platform expands, "the feedback between manufacturers and retailers creates a network effect that is a significant and durable competitive advantage for Bazaarvoice."

Bazaarvoice did not notify antitrust regulators of its plans to acquire PowerReviews before closing the deal and therefore did not have a chance to review the merger before it was consummated. The DOJ embarked on its investigation shortly after the deal closed. Bazaarvoice revealed the investigation in a securities filing July 18.

"Bazaarvoice bought PowerReviews knowing that it was acquiring its most significant rival and hoping to benefit from diminished price competition," said Bill Baer, the newly installed assistant attorney general in charge of the DOJ's antitrust division. "Without competitive pressure from PowerReviews, Bazaarvoice will be able to increase prices to retailers and manufacturers for its product ratings and reviews platform. This lawsuit seeks to prevent one firm from dominating the product rating and review platforms market, and demonstrates that transactions that are not reported to us are not immune from scrutiny."

The DOJ said consumer-generated product ratings and reviews are a "ubiquitous part of the online shopping experience." Their appearance on retailers' and manufacturers' websites allows consumers to read feedback from buyers who have come before and to judge whether they want to make a purchase. "This content is also a valuable asset for retailers and manufacturers because it can increase sales, decrease product returns and provide valuable structured, product-level data about consumer preferences and behavior," the DOJ said. "Retailers and manufacturers use product ratings and reviews platforms to collect, organize and display consumer-generated product ratings and reviews online."

In its complaint the DOJ alleges that Bazaarvoice is the dominant commercial supplier of product ratings and reviews platforms in the U.S., and PowerReviews was its closest rival. Before the transaction, PowerReviews was an aggressive price competitor, and Bazaarvoice routinely responded to competitive pressure from PowerReviews. As a result of their competition the companies offered many retailers and manufacturers substantial price discounts.

The DOJ's complaint cites numerous internal documents from Bazaarvoice as evidence that company officials sought to stem competition by acquiring PowerReviews. In one e-mail to senior company executives, company co-founder Brant Barton noted that the acquisition of PowerReviews would eliminate Bazaarvoice's primary competitor and provide "relief from . . . price erosion." Later, in support of that view current CEO Brett Hurt wrote that Bazaarvoice had "literally, no other competitors" beyond PowerReviews.

Share:
Tags: Bazaarvoice Inc. | Bill Baer | Brant Barton | Brett Hurt | Department of Justice | DOJ | PowerReviews Inc.

Meet the journalists

William McConnell

Assistant Managing Editor: Regulatory & Arbitrage



Movers & Shakers

Launch Movers and shakers slideshow

Kilpatrick Townsend & Stockton LLP added Vanessa Tollis to its New York office as a partner to chair the international tax practice. For other updates launch today's Movers & shakers slideshow.

Video

Activist investing: What to expect from this year's proxy season

What's likely to happen during the coming proxy season is the subject of Paula Schaap's interview with Damien Park, founder and managing partner of Hedge Fund Solutions, an adviser to funds and corporations on issues related to activism. More video

Sectors