(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.)
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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?
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| 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.
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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.
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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.
Best wishes,
Mark Najarian
(Mike Larson, editor of the Safe Money Report, is away.)
{ 65 comments }
Why would we want to encourage or ignore the creation of more corporate entities too big to fail? We’ve seen corporate giants trip all over themselves, even the VW group in Germany now, alongside of GM, Toyota, Goldman Sachs, Fiat/Chrysler, Morgan Stanley, and host of others. The taxpayers bail them out and they go back to behaving the same way that got them into trouble in the first place. Where’s the accountability? It’s the little investors who always suffer.
I’D LIKE TO POST A COMMENT ON THIS WEEKS RWR REPORT BY Larry Edelson BUT POSTING OPTION AS BEEN DISABLED,. FREE SPEECH??????
These by rob, probably show why Larry doesn’t allow comments – trolls.
Maybe rob has lost some money
Or maybe he lost his meds? Jim
The antitrust division of the U.S. Justice Department will certainly investigate the Walgreen and Rite-Aid merger per current regulations. Hillary et al if and when elected can advocate for tightening antitrust regulations, however, Congress is solely responsible for legislation per our Constitution and although a Chief Executive can lobby Congress for legislation, it is important for the “checks and balances” of our For-Fathers remain in tact.
MONEYANDMARKETS,. MY BAD,.
The price of kerosene pummeted as Rochafeller consolidated his empire.
And he kept it all for himself and ruthlessly crushed his competition. Then it’s win-win? The Other Jim
Killed the whaling industry also, and in doing so saved the lives of more whales than any other organization to date. Can’t please everyone and then sometimes can’t please anyone.
Regarding Mergers. Approximately 15-20 years ago I was concerned about a financial merger in Cincinnati so after hours of persistence I talked to a young man in the Banking division of the Anti Trust Department in DC. I asked him what he knew about this particular merger and he replied he knew nothing about it, so I asked what are you doing? He said actually they haven’t done anything in over the last 20 years or so.
WHAT DO YOU THINK ABOUT THAT?
What, Mr. Najarian isn’t going to quote and respond to any readers’ comments?
Mrs. Clinton would seem to have an extremely powerful campaign issue in the growing dominance of companies through mergers, especially in the drug industry, and I give her credit for being the first to pounce on it. One thing comes to mind: if all the small independent pharmacies can get along on one half of one percent of the drug business, ( CVS, Walgreen and Rite Aid now share 99.5%) There must be BIG money involved. The local Yellow Pages shows several pages, and I notice the several local CVS are missing and Rite Aid (3 locally) shows only an 800 listing, as people don’t depend on Yellow Pages anymore. Add in the Target and Walmart pharmacies, along with those of several supermarket chains, and that means that .5% must be pretty huge. Those big three, soon to be big two, have to be in the Trillions.
I am a conservative opposed to BIG government. As for the value of CEO retirement accounts, I think they are way to high. It is this type of industrial executive greed that stirs the pot and results in more call for controls from the liberals. To a large measure they are causing the problem and will sleep in the bed they have created.
If maybe 90 odd % of campaign money comes from the 1%, who do you think the politicians are going to listen to?
I am a fellow Conservative, but am I off base in taking joy in the fact that the donor class has wasted $100 million on Jeb Bush? Run Ben Run! Jim
Big business cries foul and pushes for deregulation of government regulated industries but then has no qualms about merging to get monopoly control of others. I strongly favor antitrust regulation. Drug and insurance companies don’t answer to anyone but shareholders. Meanwhile consumers and patients get screwed. If you favor competition then let’s compete. You can’t have it both ways and consumers should be sick of paying for too big to fail.
Does any one really believe that the drug and beer mergers are being done for the benefit of consumers?and that big business has our interests at heart.
In a truly free market, millions of daily consumer transactions determines the price and quality of goods. If the customers don’t buy, the sellers have to make adjustments or go out of business. Monopolies are a myth as if one exists, competition would soon appear.
The one monopoly that truly exists is the government. They have destroyed the free market through countless regulations, to easy credit (debt) to the point that our economy has stalled. Government determines winners and losers, not the free market of the consumer.
I’m disappointed in comments I see supporting the government-industrial complex
So if medication becomes too expensive, the customers only alternative is “don’t buy”?
Sounds like we have different definitions of “Free Market”. In my Free Market the buyer has more than two alternatives.
Same monopolies occurred in the 1920’s under that Republican Majority period as they rushed into 1929. From 1932 under FDR a lot of those monopolies were broken up and the economy flourished….. In 1981, the GOP came again and the monopolies began to reoccur and here we are again…..Perhaps it will take another bigger Crash to awaken the voters that the GOP is not good for the economy and their standards of living, aye?
With the new budget agreement it’s official. The Republicans just joined the Democratic Party. This bass isn’t biting anymore. Democrats good! Republicans bad! I got it. Jim
167 times better performance of the stock market under Democratic Administrations than under Republican Administrations going back to 1929… Could it not be clearer?
Eagle495
This is a financial web site devoted to ideas on self improvement and making money. Any focus on either the Dems or GOP won’t help anyone here. Politics is not here to contribute to anyone’s wealth, all of them are in the way and have no solution to our problems other than to promise more free stuff.
the insurance companies have the opportunity to change the tier leveel of drugs that they tcover every two months versus medicare recipients get to choose oncye a year whuuat level are planned that they want. drug companies push this through the legislation in order to make changes to the tier level of drugs including generic. this gives them the ultimate power because they can change the copays deductibles and ultimately the underlying base price for each individual drug. the insurance companies are the ones that maintain the pricing power for drug companies the pharmacies are just the middle man that gets a huge kick back ! the government is broke in the not too far distant future accessibility by Medicare recipients will be limited as they age this is the stage finalsolution for a large and ever increasing aging population. for us from the very top all the way to the bottom is financially and morally
The GOP regard the elderly, poor, minorities, and the young as cost centers, not profit centers. The middle class is treated as servants for the aristocracy, tolerated until machines can replace them but they have to learn their place. They oppose ACA and the single payer system because it could lead to longer life spans for those classifications of people, particularly the elderly and the poor. This must be avoided according to the GOP. Eliminating these two groups would lead to greater wealth for the top 1% and that is what the GOP is all about.
What is that? 100 grand for a CEO then? Supply and demand and the CEO goes where she/he can get the most. I do not know a worker who has turned down the best job, yet.
A merger that creates a DUOPOLY is anti-competitive per se and a clear violation of the antitrust laws.
This will be another blow to the free market and competition.
No doubt about it, if this merger is permitted, it’ll hit drug consumers pocket books hard. Competition between Walmart and Rite-Aid is desperately needed to keep drug prices in check. C’mon regulators vote NO to the merger.
Where there are mega-mergers there is not a free market. By definition, a free-market includes many buyers and many competitive sellers. When any market has a handful of suppliers they dictate prices and become less sensitive to small customers.
The existence of mega-corporations is due to government regulations which enable large corporations to operate cohesively, live forever, enforce contracts, own intellectual and real property, etc. This has benefitted societies. However, from the 19th century on, the more intelligent businessmen realized that obtaining a monopoly or quasi-monopoly (greater than 15% of a market) was more profitable than slugging it out in a free market. Unfortunately too little has been done to keep quasi-monopolies at bay.
I happen to believe that indirect means of discouraging quasi-monopolies would be more effective than direct means. For example, any corporation with more than 30% of a market or $200 billion in domestic sales (whichever is less) would be precluded from growing through mergers and acquisitions. Or, get too large and you don’t get government protection for your patents and copyrights…they go into the public domain. Another indirect means would be to limit corporate lives to 80 years or so. In the last decade they must systematically divest their assets and return funds to stockholders. The current situation of unlimited corporate lives was lobbied in the late 19th century.
The real problem with over-centralization is that too few major decisions can be made within mega corporations. Those which are made must be committed to well in advance of evidence from the market place and they must address relatively large markets. Thus, mega-corporations breed too few leaders, too few products, and have to adopt a strategy of a few mega-products which they must shove down consumers throats. Not a sustainable or pleasant process. Definitely not a free-market situation.
Nature, which is God’s Intelligent structural design, demands competition in all its forms, no excuses. Therefore he who prevents competition, their remuneration, must be controlled by law. Those who were in a position of causing their remuneration to exceed the limit must be severely punished.
Half of their personal and corporate net assets shall be forfeited to the government, this would include anyone associated with them that would stand to also profit via personal relationship.
Enabling this along with a few other changes, would cut the cost of living as much as 50%.
PeterW
It seems the Dept. of Justice has been closed for years what with the dizzying list of mergers and acquisition with nary a word from the government. To anyone who thinks the mega-companies will pass on the savings to us consumers, I have a beautiful bridge in Northern California that I can sell you at a huge discount.
Like you mentioned the mergers in the drugstore business are being triggered by government policy, ie Obamacare. How is more government control the answer? A big problem today is that small business is being rolled over by big government in our current political environment. Unless you the federal government backs off on high taxation and regulation you will see the role of small business diminish and more consolidation in most industries.
Regarding all the mergers. The flood of regulations coming out of Wash is creating a lot of extra work for companies. Because they are so complicated, an army of workers is required to understand and respond to them. So only big companies can support this overhead – small companies are out of luck. But when 2 big companies merge, it cuts the army in half. A big cost savings. And then there are the tax inversions. These get a double bang for the buck. Not only do they gain efficiencies in handling regulations, they also escape from double taxation.
As a hopelessly obsolete old fogey I miss the days when in my small hometown in Louisiana I would go to Mr. Naremores drugstore for medicine and some ice cream, stop at Mr. Taylor’s filling station for a tank of gas, and have a fine Cajun meal at Broussards Family Restaurant. They are all gone. Now I get a Walgreens or else, Exxon or else, and Taco Bell. I’m glad I don’t have long for this world. Jim.
i’m with ya, jim. ozzie osborne was paid to stumble around drunk on a reality tv show, and filthy rich kim kardashian is famous for no other reason than she’s famous. there’s something to be said for the old days.
Gold, it’s not just about nostalgia. These enterprises were run by competent individuals that took pride in their work and took a personal interest in their customers. The cold, impersonal, corporate world we have created is numbing to the human spirit and experience. There are so many annoying things we have to ignore now its enough to drive you mad. Corporatism is a loser. Jim
My dad would send me down to Doc Berger’s old drugstore with a big earthenware pitcher, and a couple of bucks, and I’d get enough thick milkshake for the four of us, plus a one buck carton of his Chesterfields. ‘Glad I never took up smoking at the price of them today.
I miss the good old days too. Is there a path back?
still waiting for the other shoe to drop in china. will it go to 2,000 on the shanghai?
I have been a hard corp National League fan my whole life, but these Kansas
City Royals are really something special. Jim
The only monopolies to be worried about are those which are government supported, and even they are temporary and spawn alternatives, note AT&T long distance. Monopolies, if they seek to exercise any monopoly power, create their own competition as long as the government does not prevent entry.
I fear the governments “creation” of competition as unnecessary, the market, left to itself, will provide all that is necessary.
Michael, Michael, Michael,
You should not be surprised in the least that competition is in Danger..What did John D Rockefeller say???? COMPETITION IS A SIN!!!! So, it’s not that competition is in danger of disappearing that’s the issue, It’s that competition is disappearing BY DESIGN. This would be a good area for you to investigate in MUCH more detail.
Monopolies are part of a sign that economic expansion and new opportunities are changing into a ‘mature economy phase’. The pioneer days when resources were plentiful and there for the taking are over and competition has turned businesses to combining or buying one another out. With all the talk about growing a bigger pie the M&As around seem to be saying that there is limited greenfield growth so eat the competition. Technology has helped but has now invented a new planet yet. Yes all the talk of individual entrepreneurs being free to develop ………… yes that was the wonderful pioneer days and now everyone face systems which have more control over their lives. Price of civilization !! Everyone wants a piece of the action and protection from the too bigs. Actually it more like consensus style government coming come to think of it ………
Sounds as though Hillary has one ‘Republican”
Mike is wasting his time, there is going to be a civil war in Germany, too many people, no country can handle it.
Rothschild model is war and he is going to get it, big money for the banks.
The megamerger thing is a concern. From the boardroom the basic theory looks good. Savings to the consumer, a win-win all the way around. But in reality, after the dust has settled, and the spreadsheets are balanced, the only winner is the new conglomerate. When completion is limited the consumer will lose. And government intervention is normally a “Band-Aid” effect.
“Increased regulatory requirements makes it more difficult for smaller companies to compete, they say.” This has been the case for the past several decades … if not centuries. And Clinton says that she will add increased regulation in order to prevent this? Throw the BS flag. Politicians make too much money from the big companies to help the little mom and pop companies thrive.
With the rise of multinationals in many fields, a maximum of 20% market share should be the standard or the consumer looses in the long run. We have seen it with breweries and now food with your Kraft/Nestles types dumbing down the amount of choice (and quality) by deals with supermarket chains for maximum shelf space so other companies do not get a look it, even though sometimes their products are much better. It is not a matter of “free trade”, when the shear power of the wallet can disadvantage others and consumers rather than having a better product.
The “brand” is USA, but the stuff being pedaled is not sourced here. This is just a reprise of the “company store” to whom generations of coal miners were perpetually in debt. The “store” will set the prices. With only two players the competition will be non-existent and there will be collusion between the two. Any semblance of freedom or choice that we now have will become slavery to the exectutive whim of those who get away with pulling off these mega-mergers.
Charles J. Kelley
Republican Administrations: Monopolies UP…
Democratic Administrations Monopolies Down….
From 1929 forward the stock Market performed 167 times better under Democratic Administrations than under Republican Administrations… Could it not be clearer?
I am against the mergers of large companies buying up smaller companies of the same ilk. Like Walgreens merging with Rite Aid. What I believe is that though the company purchasing smaller companies say it will reduce prices for consumers, I have not found that to be the case. I believe the larger company will allow for the CEO’s to come away with millions while the workers have almost nothing by comparison. I AM FIRMLY AGAINST MONOPOLIES. CONSUMERS AND SMALL BUSINESSES SUFFER THESE MERGERS.
The philosophy to which i subscribe holds that coercive monopolies are anti-capitalistic and must be prohibited. The government which we have is invested with the power to protect us from such coercive monopolies. In addition, fair competition is the positive side of that equation. “Government intervention” is not a dirty word when in pursuit of protecting the consumer to a free and open market and rational choice of products and services with prices determined by supply and demand, not by lack thereof. When you have the consolidation of all players in each market into single entities, you have fascism, a system of coercive monopolies in league with the government, just what Mussolini ordered.
Keep your eye on the PRIZE, PROFITS.
The banks have merged and installed ATM’s with charges for using them saying that they would save the consumer money by not needing as many tellers. What have they done with the savings? They’ve gone up on the min. amt. kept in a checking acct., starting charging a fee for checking accts., a fee to use ATM’S, etc. most of which used to be no charge or less chg. when they had tellers. Too, in doing this, they have caused people to be out of work. What have the done with the savings?
Mike Larsen is preaching bear market on the Weiss site but were is the evidence. Since the drop in Aug the markets have been consistently moving up with up days in the 1&1/2% range while down days less than 1/2%. It is evident the big money boys want this market to go up. Every time the markets start to sell off buying comes in to support the indexes. Eventually when they get everyone back into the markets they will sell and leave the suckers holding the bag.
Most investors know that the markets are manipulated. The Feds and central bankers zero interest rate policy and quantitative easing have made risky investments the only game in town. The saying goes “you can’t fight the feds,” so fearing they will lose out they play the game. Many have short memories. In 2000 the dot com bubble blew up and the nasdaq collapsed and didn’t recover for a decade. In 2008 the mortgage debt crisis exploded with half the stock market wealth disappearing in about six months. When will the next crisis arrive as it most certainly will? The central bankers have created a fantasy economy and the day of reckoning is coming.
What ever happened to the financial catastrophe that was to occur on October 20?
This has been changed so many times that it’s getting worn out.The IMF was to announce the new World currency. Either I slept through it,or they did!
I believe that it was Larry Edelsen that predicted that Europe would collapse starting on the 7th of October then later Japan. I wrote him at the time that he was not a prophet and predicting a certain date would be wrong. It was obvious he wanted many to sign up for his advisory letter.
The IMF are going to announce that China will be included in that select group of countries that issues SDR’s or special drawing rights. That will not happen until a year from now. SDR’s have been around for awhile and are not a new world currency but will change the world monetary system somewhat with China’s yuan gaining influence and the US dollar losing its dominance. Jim Rickards has written quite a lot about it.
If men were not subject to greed, the free market could handle everything by itself. Unfortunately some oversight is needed to keep corporate greed from swallowing up the competition.
Brad Hoppman talks today about the suspect 3rd quarter GDP figures, and how they will be revised later, and probably lowered. Do you realize that government spending is a part of GDP? I have never understood that. Yes, the government spends money, for salaries, goods and services, but that money is always taken from the productive private sector, in the form of taxes, fees or loans. It actually reduces the gross product of that sector of the economy. It doesn’t make sense that it is ADDED to the private economy, when it should, by rights, be subtracted. I wish someone could explain that in a satisfactory way.
I don’t believe that any significant savings is going tobe passed on to the consumer. The CEO’s are going to take a big cut and the shareholders are going to take a bunch and whatever is left gets passed on to you and I.
In the Information Age where there is easy and quick access to nearly all information, two, five, or ten companies can easily match each others’ price increases. Thus anti-trust laws and breaking up companies will not work anymore. The only solution, and what will eventually be the solution, that builds on free markets is for the dominant companies, along with the smaller companies and while fully doing both, to voluntarily reach agreements that give priority to the common good and secondarily compete. They will then provide common good audits by creditable third parties, as well as financial audits, so the public will trust that they are, indeed, giving priority to the common good. My soon to be published book, Common Good Capitalism: It’s Next! will provide details.
Terry Mollner
no matter what ANYONE says—–Any merger —ends up with many employees losing their jobs——no matter what ANYONE says ——people who don’t have jobs—–are not contributors to the economy—they are takers——our country is going down the tube—–Mom and Pop operations —have always been the backbone of the US—-for at least the last 20 years—starting a MOM and POPPER—has been near impossible with all the rules/regs/etc —at EVERY LEVEL——set aside everything else—-bring jobs back to the US——put everyone back to work—FULLTIME WORK——if ONLY THIS WOULD HAPPEN—-the majority of problems would start to actually fix themselves—!!!!
Please read Robert Reich’s article ” The Rigging of the American Market” http://robertreich.org/post/132363519655
to understand how the 99% are getting gouged in the pocketbook.
Regulations make it impossible for Mom and Pops to compete. I’d like to know where the cheaper prices are in big commodity markets. There are a lot of forces but merging companies is almost always to gain market share and gaining market share is about controlling the market more. Mom and pop can’t afford lobbyists on K Street. They are lucky if the government and large corporations let them stay in the game.
Look at farmers I read that there are several large companies taking home more than one billion in government subsidies. Look at banking, they get to sell loans as fast as possible to get bigger and more profitable and they compete against their own customers with computer program trading. I thought Wall Street was a chance to invest for the long term to develop new companies and ideas. Banks merge and charge to get your money out 1 or 2 %. Plus the public has to bail out big failed banks. Sorry but I just can’t find the savings being passed on to John Q Public. Furthermore why is his disposable income been falling for 15 years? Is that due to the success of mergers and large corporations working with government?