FTC Sues to Block Veterinary Supplies Distributor Covetrus’s $3.5 Billion Acquisition of Rival MWI

The Federal Trade Commission sued today to block Covetrus Inc. and its owners, Clayton, Dubilier & Rice LLC and TPG Inc., from acquiring its closest competitor, MWI Veterinary Supply Inc., for $3.5 billion from MWI’s parent, Cencora Inc.

In its complaint, the FTC alleges that the transaction would merge the two largest suppliers in the markets for veterinary clinic distribution and distribution to large corporate accounts. The combined firm would drive up costs for veterinary clinics, decrease service quality and increase prices for pet owners, according to the complaint.

Covetrus and MWI supply veterinarians with the products used in veterinary clinics, including pharmaceuticals, vaccines, “white goods,” (e.g., gloves, gauze, syringes), surgical supplies and thousands of other products, as well as associated services.

Competitive dynamics

Their customers range from independent, single-veterinarian practices to large corporate accounts with hundreds of clinic locations in the United States. Covetrus and MWI have national networks of distribution centers that allow them to deliver products quickly to these customers and offer discounts and rebates that smaller rivals are unable to match, according to the complaint.

“Veterinarians and millions of American pet owners benefit when veterinary distributors compete by offering lower prices and better service. This transaction will reduce competition in an already concentrated market and drive up prices for veterinarians and their customers,” said Daniel Guarnera, Director of the FTC’s Bureau of Competition. “These two companies are engaged in fierce head-to-head competition, and Covetrus wants to eliminate its closest competitor rather than compete for veterinary clinic customers.”

Price war allegations

Covetrus and MWI compete vigorously with each other to offer more favorable prices and service terms to veterinary clinics across the United States, according to the complaint. For example, the complaint alleges that Covetrus responded to MWI’s aggressive pricing strategy by lowering its own prices and offering rebates through its VetSuite program. As described in the complaint, this head-to-head competition between Covetrus and MWI has intensified in recent years with the emergence of Vetcove, an online platform that allows veterinarians to compare prices and leverage one distributor’s pricing against the other during negotiations.

The complaint further alleges that years of this head-to-head competition has amounted to an all-out price war between Covetrus and MWI.

• Structural challenges make it difficult for new competitors to break into the market, according to the complaint.
• While specialty distributors, manufacturers, retailers and other fringe suppliers of production animal products provide some of the products and services sought by veterinary clinics, they do not impose a meaningful competitive constraint on veterinary clinic distributors, the FTC alleges.

Regulatory action

The combination of Covetrus and MWI will result in highly concentrated markets for both veterinary clinic distribution and distribution to large corporate accounts, rendering the transaction presumptively unlawful under current antitrust case law and the FTC and Department of Justice’s joint merger guidelines, according to the FTC’s complaint.

The Commission vote to authorize staff to seek a permanent injunction to block the proposed acquisition was 2-0. The federal court complaint and request for permanent equitable relief was filed in the U.S. District Court for the Southern District of New York. The complaint is joined by the attorneys general of Arizona, Arkansas, California, Colorado, Maine, Michigan, Minnesota, Nebraska, New York, North Carolina, Ohio, Oregon and Texas.