[Federal Register Volume 61, Number 242 (Monday, December 16, 1996)]
[Notices]
[Pages 66041-66042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31803]


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FEDERAL TRADE COMMISSION
[File No. 971-0016; 971-0017]


J.C. Penney Company, Inc.; Thrift Drug, Inc.; Analysis To Aid 
Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting 
unfair or deceptive acts or practices and unfair methods of 
competition, this consent agreement, accepted subject to final 
Commission approval, would require, among other things, Penney, the 
parent company of Thrift Drug, to divest a total of 161 drug stores in 
North and South Carolina by March 1997. The agreement settles 
allegations that Penney's acquisition of Eckerd Corporation and 190 
Rite Aid stores in these two states would violate federal antitrust 
laws by allowing the firm to raise prices for pharmacy services to 
health insurance companies and other third party payors.

DATES: Comments must be received on or before February 14, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., NW., Washington, DC. 20580.

FOR FURTHER INFORMATION CONTACT:

William J. Baer, Federal Trade Commission, H-374, 6th and Pennsylvania 
Ave, NW, Washington, DC 20580. (202) 326-2932
George S. Cary, Federal Trade Commission, H-374, 6th and Pennsylvania 
Ave, NW, Washington, DC 20580. (202) 326-3741
Ann Malester, Federal Trade Commission, S-2308, 6th and Pennsylvania 
Ave, NW, Washington, DC 20580. (202) 326-2682

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Sec. 2.34 of the 
Commission's rules of practice (16 CFR 2.34), notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of sixty (60) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the accompanying complaint. An electronic copy of the 
full text of the consent agreement package can be obtained from the 
Commission Actions section of the FTC Home Page (for December 9, 1996), 
on the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A 
paper copy can be obtained from the FTC Public Reference Room, Room H-
130, Sixth Street and Pennsylvania Avenue, NW., Washington, DC. 20580, 
either in person or by calling (202) 326-3627. Public comment is 
invited. Such comments or views will be considered by the Commission 
and will be available for inspection and copying at its principal 
office in accordance with Sec. 4.9(b)(6)(ii) of the Commission's rules 
of practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an agreement containing a proposed Consent Order 
from J.C. Penney Company, Inc. and its wholly-owned subsidiary Thrift 
Drug, Inc. (collectively ``J.C. Penney/Thrift'') under which J.C. 
Penney/Thrift would be required to divest a total of 34 Thrift Drug 
retail drug stores in the Raleigh-Durham and Charlotte, North Carolina 
metropolitan areas and all of the Rite Aid retail drug stores in the 
state of North Carolina and in the Charleston, South Carolina 
metropolitan area, to a Commission-approved purchaser. The agreement is 
designed to remedy the anticompetitive effects resulting from J.C. 
Penney/Thrift's acquisitions of both the Eckerd Corporation and the 
Rite Aid drug stores in North Carolina and South Carolina.
    The proposed Consent Order has been placed on the public record for 
sixty (60) days for reception of comments by interested persons. 
Comments received

[[Page 66042]]

during this period will become part of the public record. After sixty 
(60) days, the Commission will again review the agreement and the 
comments received and will decide whether it should withdraw from the 
agreement or make final the agreement's proposed Order.
    The proposed complaint alleges that the proposed acquisitions, if 
consummated, would constitute violations of section 7 of the Clayton 
Act, as amended, 15 U.S.C. 18, and section 5 of the FTC Act, as 
amended, 15 U.S.C. 45, in the market for the retail sale of pharmacy 
services to third-party payors.
    The retail sale of pharmacy services to third-party payors refers 
to prescription drugs sold by retail outlets such as drug store chains, 
independent drug stores, food stores and mass merchandise stores, to 
third-party payors, which include insurance carriers, health 
maintenance organizations, preferred provider organizations, and 
corporate employers. Third-party payors provide retail pharmacy service 
benefits to their beneficiaries, typically through intermediaries known 
as pharmacy benefit management (``PBM'') firms that create and 
administer retail pharmacy networks on behalf of third-party payors, 
whereby third-party payor beneficiaries may go to any pharmacy 
participating in the network to have prescriptions filled. In 
establishing these pharmacy networks, third-party payors rely on 
competition between large pharmacy chains to drive down the cost of 
pharmacy services. In markets where only a small number of pharmacy 
chains compete, third-party payors pay higher rates for pharmacy 
services. Where a single pharmacy chain controls a large share of 
pharmacy locations in a given area, that chain is able to extract 
higher prices, and this situation is exacerbated when the second 
largest pharmacy chain in that given area has a much smaller number of 
pharmacies than the largest one.
    J.C. Penney/Thrift's proposed acquisitions of Eckerd and the Rite 
Aid stores in North Carolina and South Carolina will give the combined 
entity a dominant position in the state of North Carolina and its three 
major metropolitan areas--Charlotte, Greensboro, and Raleigh-Durham--
and in Charleston, South Carolina, the second largest metropolitan area 
in South Carolina, and as a result, the ability to increase prices for 
the retail sale of pharmacy services to third-party payors. Further, 
timely entry is unlikely in the market for the retail sale of pharmacy 
services to third-party payors in these geographic markets on the scale 
necessary to offset the competitive harm likely from the combination of 
J.C. Penney/Thrift, Eckerd and Rite Aid.
    The proposed Consent Order would remedy the alleged violations by 
replacing the lost competition that would result from the acquisitions. 
Under the proposed Consent Order, J.C. Penney/Thrift is required to 
divest within four (4) months of November 21, 1996, the date J.C. 
Penney/Thrift signed the Consent Agreement, the following: fourteen 
(14) Thrift drug stores in the Charlotte metropolitan area; twenty (20) 
Thrift drug stores in the Raleigh-Durham metropolitan area; all Rite 
Aid drug stores in North Carolina (110 stores); and all Rite Aid drug 
stores in the Charleston, South Carolina metropolitan area (17 stores). 
In the event that J.C. Penney/Thrift does not acquire the Rite Aid 
stores in North Carolina and South Carolina, then J.C. Penney/Thrift 
will have five (5) months from November 21, 1996, to sell the 34 Thrift 
drug stores in Charlotte and Raleigh-Durham, North Carolina. The 
proposed Order specifies that the 34 Thrift drug stores will go to a 
single purchaser to ensure competition by recreating a chain of 
sufficient size and coverage to serve as an alternative anchor pharmacy 
chain for a PBM retail pharmacy network.
    Under the proposed Order, if the divestiture is not accomplished 
within the required time period, then the Commission may appoint a 
trustee to divest not only the 34 Thrift drug stores and the Rite Aid 
stores in North Carolina and Charleston, South Carolina, but also the 
remaining sixty-three (63) Rite Aid stores in South Carolina, 
representing the entire package of Rite Aid stores that J.C. Penney/
Thrift had proposed to acquire. Further, under the proposed Order, J.C. 
Penney/Thrift is prohibited from acquiring any of the Rite Aid stores 
in North Carolina and Charleston, South Carolina until it has entered 
into an agreement, approved by the Commission, to divest those stores. 
The Commission has not required a hold separate agreement in this case 
because the proposed Order contemplates a short divestiture time 
period; the appointment of a trustee should the divestiture not occur 
within the prescribed time period; and a prohibition against J.C. 
Penney/Thrift's acquiring any of the North Carolina and the Charleston, 
South Carolina Rite Aid stores until it has entered an agreement with a 
Commission-approved purchaser to divest those stores.
    Under the provisions of the proposed Order, J.C. Penney/Thrift is 
also required to provide the Commission with a report of compliance 
with the divestiture provisions of the Order within thirty (30) days 
following the date this Order becomes final, and every thirty (30) days 
thereafter until J.C. Penney/Thrift has fully complied with the 
divestiture provisions of the proposed Order.
    The purpose of this analysis is to facilitate public comment on the 
proposed Order, and it is not intended to constitute an official 
interpretation of the agreement and proposed Order or to modify in any 
way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 96-31803 Filed 12-13-96; 8:45 am]
BILLING CODE 6750-01-P