Amid its high-profile attacks on Amazon and Microsoft, the FTC isn’t too busy to worry about people’s lunches.
The Federal Trade Commission is investigating whether the $10 billion purchase of Subway creates a sandwich shop monopoly with Jimmy John’s and Arby’s. The latter two, besides McAlister’s Deli and Schlotzky’s, are owned by private equity firm Roark Capital, which signed a deal to buy Subway in August. The government’s focus is partly on whether the addition of Subway gives Roark too much control over a lucrative segment of the fast-food industry, the sources said.
Roark paid about $10 billion for Subway, according to a third person with knowledge of the deal.
Roark, based in Atlanta, focuses on consumer chains with franchise models, and which also include Dunkin’, Buffalo Wild Wings and Baskin-Robbins.
The investigation is emblematic of the agency’s increased focus under FTC Chair Lina Khan on both deals by private equity firms and the prices of consumer staples. The FTC sued a group of Texas anesthesia practices and its private equity owner in September over a series of acquisitions that it said illegally consolidated the market. The agency is also investigating the pending merger of the Kroger and Albertsons grocery chains, and a decision on whether to challenge the deal is expected in the coming months.
Spokespeople for the FTC and Roark declined to comment. A Subway spokesperson did not respond to a request for comment.
The FTC investigation began earlier this month, according to one of the sources. Most mergers worth more than $111.4 million must undergo a mandatory 30-day review period by the FTC or Department of Justice. Any investigation beyond this deadline is discretionary. The companies unsuccessfully attempted to avoid a prolonged investigation by resorting to a procedural move that extended the initial period by an additional 30 days, according to the third person.
The investigation is in its early stages and any resolution is likely months away. Reviews of mergers by antitrust regulators can often take a year or more. The FTC can either sue to block the merger, reach an agreement with the companies that alleviates its concerns, or take no action.
When considering a merger, regulators must first determine the market in which they believe competition is being harmed. The companies argue that the FTC should broaden its scope beyond sandwiches, saying consumers choose between a wider range of options when deciding what to eat, and that Roark has only a small fraction of the total fast food market in the United States, according to two of the companies. people.
According to the August 2023 rankings from QSR magazine, which tracks the fast food industry, Subway is the largest sandwich chain in the United States based on 2022 sales, with Arby’s, Jimmy John’s and McAlister’s Deli also among the first seven.
Subway’s franchise agreement indicates that the chain considers McAlister’s Deli and Schlotzky’s as key competitors, in addition to Jimmy John’s, according to the New York Post. It doesn’t mention restaurants selling burgers and burritos, according to the Post, suggesting that Subway may not view those offerings as its main competition.
The resource-constrained FTC investigates many high-profile mergers and will ultimately have to make difficult choices about which cases to pursue.
In addition to the Kroger-Albertsons tie-up, the FTC also plans to challenge Amazon’s $1.8 billion purchase of robot vacuum maker iRobot and investigate Pfizer’s $43 billion purchase of cancer drug maker Seagen. of dollars. It also recently opened an investigation into the owners of luxury brands Tapestry and Capri, and is expected to investigate two megadeals from oil and gas giants Exxon and Chevron.
And while the FTC has successfully blocked deals by companies like Lockheed Martin and Nvidia, it has yet to win a merger challenge in court during Khan’s tenure, increasing pressure to get a victory in court. High-profile losses include an attempt to block Microsoft’s takeover of Activision Blizzard (which is on appeal) and Meta’s purchase of a virtual reality game developer.