Stamps.com revealed that its planned acquisition of Endicia is still proceeding through the Hart-Scott-Rodino antitrust review process. CEO Ken McBride said during the company’s recent quarterly earnings call, “We are currently in the regulatory review process with the Department of Justice and the timing of that process remains uncertain.”
The pre-merger review process is set up so that the US DOJ and the Federal Trade Commission can determine whether acquiring and acquired firms are competitors, or are related in any other way such that a combination of the two firms might adversely affect competition.
The two companies are well known USPS PC Postage providers that offer solutions to shippers and mailers, including online merchants, and they have a history of conflict over patent ownership – in 2012, Investor’s Business Daily wrote, “Since 2006, the companies have been suing and countersuing each other regularly.” The article covered the news that the two companies had agreed to a 5-year truce on patent litigation.
Less well known is that last year, the two were drawn into legal conflict once again in a matter related to a separate Stamps.com acquisition.
The Antitrust Review
Steven Cernak is of counsel at the law firm Schiff Hardin and is a member of the firm’s Antitrust and Trade Regulation team. He explained that when the DOJ and FTC conduct pre-merger reviews to determine if the merger harms competition, they look at many things, including documents from the parties and interviews with customers, experts, and competitors.
While pricing is key, they also look at whether output or quality would suffer. Is the merger harmful to consumers – would they pay a higher price, or not have as many to buy, or would the products or services be of lower quality?
While the HSR pre-merger notification form is only 8 pages, companies typically turn in a lot of documents (boxes and boxes). That includes the documents that the companies’ officers and directors looked at when evaluating the transaction. The government has 30 days to make decision or to make a request for more information – more information about the process is available on the FTC website.
Stamps.com and Endicia Offer Ecommerce Solutions
In addition to serving other markets, both Stamps.com and Endicia provide USPS PC Postage solutions popular with online sellers to streamline postage, shipping, and tracking tasks, especially those selling across multiple channels. Both offer plans to online sellers that start at $15.99/month, offering USPS Commercial pricing, which are discounted rates that the US Postal Service makes available to those printing postage online.
Readers who left comments in an EcommerceBytes blog post about the proposed acquisition in March who used either Stamps.com or Endicia said they hoped the deal would result in no changes to the service they used. The prevailing opinion expressed by sellers on industry discussion boards was that they didn’t want to be forced to change providers after the acquisition. Apparently some sellers fear that post-acquisition, Stamps.com could choose to migrate all sellers onto one platform.
An Argument for Non-Competing Markets
In its announcement of the deal in March, Stamps.com positioned the companies as focusing on different segments of the internet mailing and shipping market, with minimal customer overlap.
“The profile of the top customers of the companies are very different, with nearly all of Stamps.com’s top customers in the enterprise mailing area, and all of Endicia’s top customers in the high volume shipping area. As a result of the different focuses of the two companies, the average annual volume per customer for Endicia is significantly higher than that of Stamps.com.”
Stamps.com said it also competed with Pitney Bowes (which offers pbSmart Postage – not popular with small online sellers) and eBay (which is powered by Pitney Bowes).
USPS spokesperson Dave Partenheimer confirmed that Endicia, Stamps.com, and Pitney Bowes are the only companies that provide online postage (aka PC Postage Providers). USPS also offers Click N Ship online postage on its own website, but it doesn’t provide the advanced features available through the other providers. And technically, companies can integrate with the USPS directly rather than using a service like Stamps.com and Endicia by using the USPS’s Postal Explorer, though it appears that is not a popular option.
Pitney Bowes spokesperson Daniel Burris said pbSmartPostage is designed for the small to medium volume office shipping environment and is scalable for multi-location applications – it is not targeted at the consumer market.
While Pitney Bowes supports some of the largest retailers with shipping solutions, the only way it reaches smaller sellers is through its support of online marketplaces. Burris said Pitney Bowes powers the eBay shipping label printing service, PayPal’s MultiOrder Shipping tool, and eBay’s Global Shipping Program.
Adam Lewenberg of Postal Advocate said he believes the Stamps.com acquisition of Endicia would be a good thing for the industry, “to have more resources and focus on this space.” But even if competition were quelled by the merger of Stamps.com and Endicia, he said, the Postal Service would open online postage to other companies – “there’s always space for new entrants.” Postal Advocate manages the mailing equipment and postage spends for Fortune 1000 clients throughout their locations.
Would the USPS look for another company to grant PC Postage approval to in the event the Stamps.com acquisition of Endicia goes through? USPS’s Partenheimer said that question got into legal and speculative issues that he could not address.
Barriers of Entry
Cernak said the defense in most mergers is that there is plenty of competition and lots of people can come in. But approval by the USPS could present a barrier to entry.
However, he said, Stamps.com could make an argument that there are other options – even including buying a roll of stamps.
Postal Advocate’s Lewenberg said that while he could not say it would be easy for others to become USPS approved postage providers, “there are so many companies in this space, and technology has improved to such a level since PC Postage was created that this would be a reality.”
However, it’s possible Stamps.com and Endicia’s history of patent-infringement litigation could be a deterrent to others considering entering the space.
Multi-carrier Shipping Software
In addition to offering postage solutions directly to shippers and mailers, both Stamps.com and Endicia license their technology to multi-carrier shipping software solutions that help manage shipping for companies that use a combination of FedEx, UPS, and USPS services.
Those companies could also be impacted by the merger, but are different from other types of customers. Cernak said in a pre-merger review, regulators can determine that there is a certain class of customers who are different from the typical customer and can make a determination of substantive harm to competition in a narrow market.
He noted that generally they prefer not to have regulatory remedies – they prefer to approve or block a merger, or to have companies sell off part of the assets so it remains competitive.
What makes this “narrow market” so interesting in the context of the proposed merger is that last year, Stamps.com acquired two multi-carrier shipping software companies, ShipWorks (for $22 million) and ShipStation (for $50 million).
With the acquisition of Endicia, one company would control both PC Postage solutions (Stamps.com and Endicia), while also owning rival multi-carrier solutions (ShipStation and ShipWorks). We talked to a number of ShipStation competitors, and none of them would go on the record about how that might impact their businesses.
However, Endicia itself sued ShipStation (Auctane LLC) after Stamps.com acquired it (and clearly before Stamps agreed to acquire Endicia). In its lawsuit filed in September, Endicia said Stamps.com was its only direct competitor with respect to the provision of PC Postage using a software service similar to its Endicia Label Server. (Claims and counterclaims were dismissed in January 2015.)
It’s also worth noting the potential impact on end-users in this narrow market – one online merchant who uses a multi-carrier shipping software solution with a free Endicia account told EcommerceBytes he was concerned he’d be forced to use ShipStation in order to keep the free account.
Other Shipping Carriers
What makes the antitrust review of Stamps.com and Endicia different than many other types of companies is that they are not making and selling widgets – rather, they provide a method by which to purchase postage, whose rates are set by the USPS. (Stamps.com and Endicia charge monthly subscription fees.)
And that points out another complexity: if Stamps.com and Endicia can negotiate better rates with the USPS after the acquisition, that could actually be a good thing for customers. “The USPS gives incentives to the PC Postage providers for how much package volumes they can get through their network,” Lewenberg explained.
However, as we’ve previously reported, UPS and FedEx have expressed concernabout USPS lowering rates for package services and whether they operate on a level playing field.
We asked UPS and FedEx what they thought of the acquisition and if they had been contacted by government representatives as part of the antitrust review. A UPS spokesperson said UPS always evaluates competitor activity to reinforce a free and open market for shipping solutions, especially with growing ecommerce and online marketplaces.
“UPS is evaluating this merger the same as we would view any that involves a competitor and to make sure there continues to be a competitive, level playing field with the USPS. We wouldn’t comment about whether we had been contacted or were seeking to provide comment through any regulatory process,” he said.
FedEx did not respond to our inquiry.
Peter Kaplan, Deputy Public Affairs Director for the FTC, said he could not comment on the progress of specific cases. Neither Stamps.com nor Endicia would comment for this story – not surprising since both are public companies (Endicia is owned by Newell Rubbermaid), and the government review is a sensitive matter.
We asked Cernak what he would tell Stamps.com if he were advising them through the Hart-Scott-Rodino premerger review. “I’d get as many customers to say the decision is great, or at least the deal is not bad.” And he would have them mention lots of other good things that would lead to efficiencies, he said.
“Enforcers listen to what customers think,” he said.
Comment on this March 25th EcommerceBytes Blog post.