Valassis: An Earnings Call With Terms for Its Only Rival

In the Valassis invitation to collude case, the Federal Trade Commission alleged that the coupon-insert publisher used an earnings call to offer its only rival a deal to stop competing for each other’s customers. Valassis settled the charges through a civil consent order. The proposed bargain reached down to individual bids: which customers to defend, which to leave alone and how quickly the rival needed to respond.

The rival was News America Marketing. According to the Federal Trade Commission’s account of the call, Valassis executives knew News America would be listening when the chief executive opened the July 22, 2004 earnings call. They allegedly used that audience to explain how the companies could end a price war. An investor presentation had become the delivery vehicle for a proposed customer split.

The Coupon Business Behind the Price War

Free-standing inserts are the multipage coupon booklets distributed in Sunday newspapers. Consumer packaged goods manufacturers and other advertisers bought space in them to put coupons into households on a mass scale. The agency described a market with only two U.S. publishers, Valassis and News America. On a typical Sunday, their booklets went through hundreds of newspapers to more than 50 million households.

The Federal Trade Commission’s analysis traced the dispute to a failed price increase. Between 1998 and 2001, each publisher produced approximately half of the insert pages. In June 2001, Valassis announced a five percent increase. News America did not follow, won customers and took a substantial lead in market share.

Valassis changed course in February 2002 and tried to win back its former share. By 2004, prices had fallen below $5 for a full page per thousand inserts. The advertiser buying coupon space had benefited from the rivalry.

According to the agency, Valassis executives decided by midyear that the fight for more business no longer served the company. They developed a different plan: each publisher would leave the other’s customers alone, allowing both to raise prices within their own customer base. The commercial attraction was straightforward. Valassis wanted the benefit of a price increase without losing business to the rival that had refused to follow the last one.

What Valassis Put on the Earnings Call

The alleged invitation specified how to stop chasing customers while continuing to submit quotes.

Valassis held quarterly calls with securities analysts, and anyone could listen live over the Internet or obtain a transcript from its website. The agency alleged that executives deliberately chose that public setting because they expected News America to monitor it.

Existing Customers Protected, Growth Target Dropped

Valassis would abandon its goal of returning to half the market and accept the share it then held, in the mid-40s percent. It would still cut prices as far as necessary to defend its existing customers.

That combination was central to the alleged offer. Valassis proposed to stop taking business from News America while retaining the ability to fight hard if News America came after its accounts. The restraint depended on the rival returning the favor.

Higher Quotes for the Rival’s Customers

For customers whose News America contracts were expiring, Valassis announced a full-page floor of $6 per thousand inserts, effective July 26, 2004. It also specified a half-page floor. The Federal Trade Commission said those proposed prices restored the levels from before the price war and would put Valassis’s bids for News America’s historical customers substantially above prevailing prices.

A quote could still arrive. Under the proposed arrangement, it would arrive at a price designed to leave the rival’s business undisturbed. An advertiser seeking a better offer would face a publisher willing to discount for its own accounts but holding a higher floor for that advertiser.

A Split Inside Shared Accounts

The proposal also addressed advertisers buying space from both publishers. Valassis would price aggressively enough to keep its historical portion of a shared customer’s business. If the customer wanted to move additional business to Valassis, the higher floor would apply to that extra portion.

This was customer allocation inside a single account. Even an advertiser already buying from both companies would encounter a price boundary when trying to move more work from one to the other. The proposed split followed the publishers’ historical shares of the account.

A Deadline for Old Bids and a Demand for Reciprocity

Valassis already had four bids outstanding to News America customers. It said it would honor them only until August 1, 2004, after which the higher pricing would apply.

The agency also described a condition on the whole proposal: Valassis would watch for prompt evidence that News America was reciprocating. If News America continued competing for Valassis customers and market share, Valassis would return to its earlier pricing strategy and the price war would resume.

What Qualifies as “Collusive Conduct”?

An invitation to coordinate prices and divide customers was the alleged collusive conduct in Valassis. The Federal Trade Commission pursued the invitation itself under the Federal Trade Commission Act.

The agency gave three reasons for challenging invitations even when acceptance cannot be proved. An agreement can be hard to uncover, and even an unaccepted offer can help rivals coordinate by revealing intentions. Stopping the invitation also deters potentially harmful conduct that serves no legitimate business purpose.

The agency focused on what Valassis communicated and why. It alleged that the company supplied information it would not ordinarily have disclosed to investors, with the purpose of telling News America exactly how to replace competition with coordination. The details about shared accounts and pending bids made the proposal operational.

The Federal Trade Commission’s explanation of the audience is particularly revealing:

The agency also explained why the public setting mattered. A statement to securities analysts could make an offer more credible to a rival because a public company has obligations concerning the truthfulness of material statements.

Had News America accepted, the agency said the likely result would have been higher insert prices and reduced output.

The Civil Consent Resolution

Valassis resolved the Federal Trade Commission’s charges through a consent order restricting future conduct. The FTC’s case summary says the order barred Valassis from engaging in or inviting collusive agreements with other publishers and from attempting to collude with competitors.

The agency’s March 20, 2006 analysis proposed restrictions on inviting a competitor to divide markets, allocate customers or fix prices, as well as entering into or carrying out such an agreement. The proposed order would last 20 years.

A Rejected Territory Offer in a Criminal Case

The highway crack-sealing case ended in an attempted-monopolization plea after a rival refused a territorial offer, a different route from Valassis’s civil resolution.

What a Pricing Insider Can Explain

An insider can connect a public statement to the customer rules and pricing decisions behind it. In the Valassis allegations, the important distinctions were concrete: an existing account versus a rival’s account, a retained share versus additional business, and an outstanding bid versus the price that would replace it.

The 2018 construction-bidding review distinguishes the structure of a market from the behavior of its participants. Market concentration is one kind of information. Pricing strategies, market shares and bidding behavior are another.

That distinction helps explain the evidence in this case. The two-publisher market explains whom the offer could reach. The account rules, bid deadlines and demand for reciprocity explain what Valassis allegedly wanted the other publisher to do.

For someone working in sales, pricing or investor relations, knowledge of why those details appeared in the call could connect the public words to the company’s decisions. We work with insiders to understand those connections: the purpose of the message, the instructions behind the quotes and the response the company expected.

Is There a Reward for Reporting Antitrust Collusion?

Antitrust insiders have a whistleblower reward program of their own. We assess how your information fits the applicable program and the conduct it reveals.

Where collusion also involves false claims for government payment, the False Claims Act provides a separate whistleblower route. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Why the Quote Changed

Bring our whistleblower experts the proposed exchange in the earnings call and what the rival did after hearing it.