When three companies control about 85% of a market, anti-competitive collusion must be tempting. The complaint for this securities class action claims that Patterson Companies, Inc., colluded with its two main dental product competitors to keep prices high and maintain profit margins. This antitrust activity, the complaint says, was hidden from investors, in violation of the Securities Exchange Act of 1934, artificially boosting Patterson’s sales figures and stock price until the truth emerged.
The class for this action is all those who acquired Patterson Companies, Inc. common stock, between June 26, 2015 and February 28, 2018, and were damaged thereby.
Patterson is one of the largest full-service distributors of dental products and services in the US, controlling about 33% of a $10 billion market. Its two main competitors are Henry Schein and Benco Dental Supply Co., and together the three companies control 85% of the market for dental products and supplies.
Among the targets of the cartel-like agreements the companies worked out was a refusal to sell to group purchasing organizations (GPOs). GPOs allow small dental practices to band together and make bulk purchases so that they can obtain optimal prices. The three companies agreed among themselves not to sell to GPOs, or at least not to provide GPOs with any discounts unless the groups agreed to margins set by the three companies.
But Patterson did not disclose this illegal activity to its investors, the complaint said. Instead, it claimed that it differentiated itself from competitors by “competitive pricing.”
The scheme came to a halt when the Federal Trade Commission (FTC) filed an administrative complaint against the three companies on February 12, 2018. That complaint said that the companies had been engaging in antitrust activities since at least February 2013, in an attempt to fix or maintain prices of dental supplies and products.
The FTC complaint quoted e-mails in support of its charges, such as an e-mail from a Patterson executive ordering the company’s sales team not to do business with a certain GPO, saying that “our 2 largest competitors stay out of these as well.” A June 2014 text message was even blunter: “[W]e’ve signed an agreement that we won’t work with GPO’s…” Messages from Benco also attest to the existence of an anti-competitive agreement between the three.
At this news, the company’s stock price fell by 5%.
This was not the end of the bad news. Just weeks after the FTC complaint became public, Patterson announced a 26% decrease in quarterly earnings and the resignation of its CFO. The company also cut full-year guidance for the second quarter in a row. After these announcements, Patterson’s stock price fell by 23% in a single day.