NEW YORK (The Deal) -- Five months into the Federal Trade Commission's extended review of Service Corp. International's (SCI) - Get Report proposed $1.4 billion purchase of funeral home rival Stewart Enterprises (STEI) , staff from the agency and from the Maryland Attorney General's office recently met with a group of consumers and rabbis to hear concerns about the deal's effect on Jewish funerals in the Washington area.
The deal would create a chain consisting of 2,000 funeral homes and cemeteries, the largest in the country.
The group is concerned that the merger will result in the cancellation of a contract between Stewart-owned funeral home
Hines-Rinaldi Funeral Home
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Jewish Funeral Practices Committee
of Greater Washington. The group wants the FTC to require Hines-Rinaldi to be included in a package of divestitures the agency is expected to require as a condition of antitrust approval.
The committee negotiated a standard contract for funerals that offers several consumer protections and a lower cost. A lawyer for a Jewish group that is lobbying the FTC said Hines-Rinaldi's traditional Jewish funerals cost 60% less and save consumers more than $500,000 annually compared with those offered by the two SCI-owned Jewish funeral homes, which hold a 60% market share in the Washington metro area.
On Oct. 31, staff from the FTC and the Maryland attorney general's office took the rare step of meeting with more than 100 consumers and 13 rabbis from the Washington area to hear their concerns about the merger. The meeting was organized by the Jewish Community Relations Council of Greater Washington. The council is asking that the FTC require that as a condition of antitrust approval SCI divest Hines-Rinaldi, which provides over 230 funerals a year under the arrangement worked out with the Jewish Funeral Practices Committee, which consists of over 40 synagogues in the Washington area.
Antitrust lawyer David Balto, who represents the Jewish Community Relations Council in its efforts to convince the FTC to require the divestiture of Hines-Rinaldi, said the funeral home is a direct competitor to SCI's two Jewish-focused funeral homes, and SCI will have no incentive to retain the contract worked out by the Jewish Funeral Practices Committee.
To protect the low-cost option and pro-consumer provisions of the contract, the FTC needs to step in, he said. Balto noted that the FTC has long been aggressive in combating funeral home abuses. Three decades ago it established the Funeral Practice rule that requires a broad range of consumer protections.
"You're talking about a consumer purchasing decision that's not discretionary," Balto said. Consumers are incredibly vulnerable. That's why enforcement is absolutely needed here. We can't expect the marketplace to correct if there is an exercise of market power."
The contract with the funeral practices committee makes funerals far more affordable, especially for those of limited means, he said. The standard Hines-Rinaldi price under the contract is $1,820 compared with the $5,000 to $6,000 that the group said SCI typically charges.
Other consumer benefits include relieving the deceased's family from having to go to the funeral home to sign a contract and not billing them for 30 days.
Lawyers for SCI did not respond to a request for comment. But company officials acknowledged when the deal was announced in June that some divestitures of cemeteries and funeral home locations were expected.
The companies' merger agreement allows SCI, the largest combined funeral home and cemetery operator in the U.S., to walk away from the deal if the required divestitures exceed $60 million in Ebitda, although company officials predicted the total earnings of properties ordered sold would be below that threshold.
Nationally, an organization representing funeral consumers is urging the FTC to challenge the deal. The Funeral Consumers Alliance said the cost savings that big retail chains typically generate for consumers do not exist in the funeral market, thus no efficiencies exist to offset the consumer harm posed by the deal.
The alliance said that complaints about SCI include allegedly lying about options in order to boost the funeral bill, digging up graves to re-sell them to unsuspecting families and denying the legal rights of LGBT
lesbian, gay, bisexual and transgendered people to make funeral arrangements for their partners.
-- Written by Bill McConnell In Washington