The Federal Trade Commission filed suit seeking to stop Covetrus Inc., along with owners Clayton, Dubilier & Rice LLC and TPG Inc., from buying rival MWI Veterinary Supply Inc. for $3.5 billion from MWI’s parent, Cencora Inc., the agency said Friday.
In its complaint, the FTC alleges the acquisition would combine the two largest suppliers in markets for distribution to veterinary clinics and to large corporate accounts. The agency says the combined firm would raise costs for clinics, reduce service quality, and increase prices for pet owners.
Covetrus and MWI supply veterinarians with pharmaceuticals, vaccines, gloves, gauze, syringes, surgical supplies and many other products, as well as related services, according to the complaint. Their customers include independent practices and large corporate accounts that operate hundreds of clinics nationwide. The complaint says both companies operate national distribution networks that enable fast delivery and offer discounts and rebates that smaller rivals cannot match.
“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,” said Daniel Guarnera, Director of the FTC’s Bureau of Competition. He said the deal would lessen rivalry in a market that is already concentrated and would raise what veterinarians and their clients pay.
According to the complaint, Covetrus and MWI compete vigorously on prices and service terms. The FTC alleges Covetrus lowered prices and offered rebates through its VetSuite program in response to MWI’s aggressive pricing. The complaint says their rivalry has intensified with the rise of Vetcove, an online platform that lets veterinarians compare prices and use one distributor’s pricing to negotiate with the other, and that years of this head-to-head competition have amounted to an all-out price war.
The complaint states that structural barriers make entry difficult. While specialty distributors, manufacturers, retailers and other fringe suppliers provide some products and services used by clinics, the FTC alleges they do not meaningfully constrain veterinary clinic distributors.
The FTC says the deal would result in highly concentrated markets for veterinary clinic distribution and for distribution to large corporate accounts, making the transaction presumptively unlawful under current antitrust case law and the joint merger guidelines of the FTC and the Department of Justice, according to the complaint.
The Commission voted 2-0 to let staff ask the court for a permanent injunction against the deal. The federal court complaint and request for permanent equitable relief were filed in the U.S. District Court for the Southern District of New York, joined by the attorneys general of Arizona, Arkansas, California, Colorado, Maine, Michigan, Minnesota, Nebraska, New York, North Carolina, Ohio, Oregon and Texas.