Energizer's Varta, Rayovac takeover faces tougher test in EU than in US

23 July 2018 10:15am

18 July 2018. By Natalie McNelis

American battery manufacturer Energizer’s $2 billion purchase of Spectrum Brands’ global battery and flashlights business might encounter more regulatory trouble in Europe than it did in the United States.

The deal, announced in January, sailed through the US regulatory process. But in the EU, the two US-based companies’ combined market shares for branded batteries might raise some eyebrows.

While Spectrum isn’t a household name in Europe, its brands are: Varta is a market leader in alkaline batteries in Germany, and anyone who wears hearing aids will know Rayovac’s name. Since Energizer is itself a top player in Europe, EU regulators can be expected to take a careful look at the tie-up.

That being said, a significant part of the EU battery market is taken up by “private-label” batteries, sold by large retailers without specific branding. Regulators will consider to what extent these batteries compete with brands such as Energizer and Varta.

Energizer, headquartered in St. Louis, Missouri, makes alkaline batteries — think AA, AAA, C, D and 9V batteries. It also makes lithium “coin” batteries, used in cameras and smoke detectors, and hearing-aid batteries, under its own name and the Eveready brand.

Middleton, Wisconsin-based Spectrum Brands’ Varta and Rayovac also make alkaline batteries, lithium coin and hearing aid batteries. Rayovac is particularly known for tiny zinc-air hearing-aid batteries, powered by oxidizing zinc with oxygen from the air.

Alkaline, lithium-coin and hearing-aid batteries are all classed as “portable” batteries, which means small enough to be hand-carried and used in small devices such as laptops, portable tools and toys.

The parties, both of which are traded on the New York Stock Exchange, said in March 2018 that they expect the transaction to close in the second half of 2018.

— National markets —

Nonetheless, a recent shift in their regulatory approach could be a sign that they have faced unexpected difficulties in Europe.

The parties originally intended to seek regulatory clearance with some individual European countries — Energizer specifically identified Germany, Spain and the UK in a May investors call. And they even had some preliminary meetings with national authorities, MLex understands.

But then at the beginning of June, they shifted gears, announcing that they would instead file for merger review with the European Commission (see here). This could be an indication that initial contacts with national authorities were more difficult than expected.

Energizer declined to comment when asked whether this was the case, saying only that it is “having open and constructive discussions with [EU competition officials] and remains confident that the proposed merger will be approved.”

But when viewed through the lens of individual European countries, market shares for branded batteries could indeed raise some questions.

Take Germany as an example. Varta and Energizer hold the top two positions in sales of alkaline batteries there, MLex understands. Together, they would stitch up more than two-thirds of the market. Other competitors, including Duracell, are significantly smaller.

For lithium-coin batteries, Energizer is on top with about a third of the German market, and Varta is No. 2 with about a fifth — giving them about half of the market between them. The rest is carved up between several smaller players.

And for hearing-aid batteries, Rayovac and Energizer each account for roughly a third of all batteries sold to retailers in Germany, while the rest is fragmented among much smaller players.

The UK market shows some similar hotspots, particularly when it comes to hearing-aid batteries. Rayovac accounts for around two-thirds of all hearing aid batteries sold to retailers in the UK, and Energizer about 10 percent.

Even though national authorities won’t ignore competition from outside their borders, the potential impact of the tie-up on their home markets might loom larger for domestic watchdogs than for the European Commission.

— An EU view —

In past decisions, the commission has said the portable-batteries market is “at least Europe-wide and possibly worldwide” in scope. After all, portable batteries are mainly produced in Asia and exported all over the world; there are no major differences in customers' requirements regardless of location; and many wholesale customers source globally.

From a pan-European perspective, US company Duracell emerges as a significant competitor, as does Japanese manufacturer Panasonic.

Indeed, Energizer calls Duracell its “primary competitor” in higher-price portable batteries. In its 2017 annual report, it lists Spectrum Brands and Panasonic as its top rivals in the “price-conscious” market segment in Europe, Africa, Latin America and Asia.

Still, Energizer is a — if not the — market leader for branded batteries in Europe. For alkaline and lithium-coin batteries, competitors can argue that Energizer has a third of the European market and that Varta would add roughly 10 percent.

For hearing-aid batteries, they can argue Rayovac is the dominant supplier, accounting for around two-thirds of all such batteries sold to retailers in Europe, and that Energizer is one of its few significant competitors.

— Private-label competition —

Yet a factor that might mitigate in favor of the deal is the role of private-label — non-branded — sales by large retailers.

Energizer declined to comment on this question, but previously said in its 2017 annual report that such sales have an impact on the market in some parts of the world, “particularly in certain European markets such as Germany and Spain.”

The EU’s take on this deal might hinge on whether officials are convinced that branded and non-branded batteries compete head-to-head in Europe. Otherwise, they might balk at adding, even incrementally, to Energizer’s market power.

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