[Federal Register Volume 63, Number 188 (Tuesday, September 29, 1998)]
[Notices]
[Pages 51933-51936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26028]
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FEDERAL TRADE COMMISSION
[File No. 981-0134]
Albertson's, Inc., et al.; Analysis to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint that accompanies the consent agreement an the terms of the
consent order--embodied in the consent agreement--that would settle
these allegations.
DATES: Comments must be received on or before November 30, 1998.
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 Baer or Richard Liebeskind, FTC/H-374, Washington, DC 20580.
(202) 326-2932 or 326-2441.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade
[[Page 51934]]
Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 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 complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for September 22, 1998), on the World Wide Web, at ``http://
www.ftc.gov/os/actions97.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 Section
4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR
4.9(b)(6)(ii)).
Analysis of The Draft Complaint, Proposed Consent Order, and Asset
Maintenance Agreement to Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted for
public comment from Albertson's, Inc. (``Albertson's''), Locomotive
Acquisition Corporation (``Locomotive''), Buttrey Food and Drug Store
Company (``Buttrey''), and FS Equity Partners II, L.P. (``FS Equity
Partners'')(collectively ``the proposed Respondents'') an Agreement
Containing Consent Order (``the proposed consent order'') and an Asset
Maintenance Agreement. Locomotive is a wholly-owned subsidiary of
Albertson's, and FS Equity Partners owns a majority of the voting
securities of Buttrey. The proposed consent order is designed to remedy
likely anticompetitive effects arising from Albertson's and
Locomotive's proposed acquisition of the outstanding shares of Buttrey.
II. Description of the Parties and the Proposed Acquisition
Albertson's, a Delaware corporation headquartered in Boise, Idaho,
operates approximately 916 supermarkets in 23 Western, Midwestern, and
Southern states. Albertson's supermarkets operate under the
``Albertson's'' and ``Max Food and Drug'' trade names. In the states
where Albertson's competes with Buttrey, Albertson's operates nine
supermarkets in Montana (eight directly compete with Buttrey stores)
and nine supermarkets in Wyoming (seven directly compete with Buttrey
stores). Albertson's total sales for the fiscal year ending January 29,
1998, were approximately $14.7 billion. At this time, based on total
sales, Albertson's is the fourth largest supermarket chain in the
United States.
Buttrey, a Delaware corporation headquartered in Great Falls,
Montana, operates 44 supermarkets in Montana, Wyoming, and North
Dakota. Buttrey operates supermarkets under the ``Buttrey Big Fresh,''
``Buttrey Food & Drug,'' and ``Buttrey Fresh Foods'' trade names.
Buttrey's total sales for the fiscal year ending January 31, 1998, were
$391.4 million. FS Equity Partners owns 50.8% of the outstanding shares
of Buttrey and is the ultimate parent entity. Freeman Spogli & Co.,
Inc., an investment firm, is the general partner of FS Equity Partners.
On or about January 19, 1998, Albertson's and Locomotive entered
into an Agreement and Plan of Merger (``the proposed acquisition'')
with Buttrey to acquire through a cash tender offer all of the
outstanding common stock of Buttrey for $15.50 per share. Albertson's
will also assume Buttrey's debt obligations. The total value of the
proposed acquisition, including debt obligations, is approximately $174
million.
III. The Draft Complaint
The draft complaint accompanying the proposed consent order alleges
that the proposed acquisition under which Albertson's and Locomotive
would acquire all of the outstanding shares of Buttrey violates Section
5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45. The
draft complaint also alleges that the proposed acquisition would, if
consummated, substantially lessen competition in violation of Section 7
of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the
Federal Trade Commission Act, as amended, 15 U.S.C. 45.
The draft complaint alleges that the relevant line of commerce
(i.e., the product market) is the retail sale of food and grocery items
in supermarkets. Supermarkets provide a distinct set of products and
services for consumers who desire to one-stop shop for food and grocery
products. Supermarkets carry a full line and wide selection of both
food and nonfood products (typically more than 10,000 different stock-
keeping units (``SkUs'')) as well as a deep inventory of those SKUs. In
order to accommodate the large number of food and nonfood products
necessary for one-stop shopping, supermarkets are large stores that
typically have at least 10,000 square feet of selling space.
Supermarkets compete primarily with other supermarkets that provide
one-stop shopping for food and grocery products. Supermarkets primarily
base their food and grocery prices on the prices of food and grocery
products sold at nearby supermarkets. Supermarkets do not regularly
price-check food and grocery products sold at other types of stores and
do not significantly change their food and grocery prices in response
to prices at other types of stores. Most consumers shopping for food
and grocery products at supermarkets are not likely to shop elsewhere
in response to a small price increase by supermarkets.
Retail stores other than supermarkets that sell food and grocery
products, such as neighborhood ``mom & pop'' grocery stores,
convenience stores, specialty food stores (e.g., seafood markets,
bakeries, etc.), club stores, military commissaries, and mass
merchants, do not effectively constrain prices at supermarkets because
they operate significantly different retail formats. None of these
stores offers a supermarket's distinct set of products and services
that enable consumers to one-stop shop for food and grocery products.
According to the draft complaint, the relevant sections of the
country (i.e., the geographic markets) in which to analyze the
acquisition of Buttrey by Albertson's and Locomotive are the areas in
and near following cities and towns: (a) Billings, Montana; (b)
Bozeman, Montana, (c) Butte, Montana; (d) Great Falls, Montana; (e)
Helena, Montana; (f) Missoula, Montana; (g) Casper, Wyoming; (h)
Cheyenne, Wyoming; (I) Cody, Wyoming; (j) Gillette, Wyoming; and (k)
Laramie, Wyoming.
According to the draft complaint, the relevant markets are highly
concentrated, whether measured by the Herfindahl-Hirschman Index
(commonly referred to as ``HHI'') or by two-firm and four-firm
concentration ratios.\1\ The acquisition would substantially increase
concentration in each market. Albertson's and Buttrey have a combined
market share of more than 35% in each geographic market. The post-
acquisition HHIs in the geographic markets range from 2,264 to 10,000.
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\1\ The HHI is a measurement of market concentration calculated
by summing the squares of the individual market shares of all the
participants.
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[[Page 51935]]
Albertson's and Buttrey are direct competitors in every geographic
market. According to the draft complaint, Albertson's and Locomotive's
proposed acquisition of Buttrey, if consummated, may substantially
lessen competition in the relevant markets by eliminating direct
competition between supermarkets owned or controlled by Albertson's and
supermarkets owned or controlled by Buttrey; by increasing the
likelihood that Albertson's will unilaterally exercise market power; or
by increasing the likelihood of, or facilitating, collusion or
coordinated interaction among the remaining supermarket firms. Each of
these effects increases the likelihood that the prices of food,
groceries or services will increase, and the quality and selection of
food, groceries or services will decrease, in the relevant sections of
the country. According to the draft complaint, entry is difficult and
would not be timely, likely, or sufficient to prevent anticompetitive
effects in the relevant geographic markets.
IV. Terms of the Agreement Containing Consent Order, i.e., the
Proposed Consent Order
The proposed consent order attempts to remedy the Commission's
competitive concerns about the proposed acquisition. Under the terms of
the proposed consent order, the proposed Respondents must divest
fifteen specific supermarkets in the relevant markets. Six of the
supermarkets that the proposed Respondents must divest are currently
owned and operated by Albertson's (of which five operate under the
``Albertson's'' banner and one operates under the ``Max'' banner) and
nine of the supermarkets are currently owned and operated by Buttrey
(of which two operate under the ``Buttrey Big Fresh'' banner and seven
operate under the ``Buttrey Fresh Foods'' banner). The proposed
Respondents must divest thirteen supermarkets to Smith's Food & Drug
Centers, Inc. (``Smith's''), a wholly-owned subsidiary of Fred Meyer,
Inc., and two supermarkets to Supervalu Holdings, Inc., a wholly-owned
subsidiary of Supervalu, Inc. (collectively ``Supervalu''). The
specific supermarkets that the proposed Respondents must divest to
Smith's and Supervalu are listed below.
The Commission's goal in evaluating possible purchasers of divested
assets is to maintain the competitive environment that exists prior to
the merger. When divestiture is an appropriate remedy in a supermarket
merger, the Commission requires the merging parties to find a buyer for
the divested stores. A proposed buyer must not itself present
competitive problems. For example, the Commission is less likely to
approve a buyer that already has a large retail presence in the
relevant geographic area than a buyer without such a presence. The
Commission is satisfied that the purchasers presented by the parties
are well qualified to run the divested stores and pose no separate
competitive issues.
Although a supermarket chain is the proposed purchaser in many of
the markets in this matter, this does not represent a Commission
position that only large chains can be competitive in the supermarket
business. Indeed, in several cases during the last few years,
supermarkets required to be divested as a result of a Commission merger
investigation have been sold to independent store operators (often with
financial support from a wholesaler). See Jitney-Jungle Stores of
America, Inc., Docket No. C-3784 (1998), Koninklijke Ahold nv, 122
F.T.C. 248 (1996), Schnuck Markets, Inc., 119 F.T.C. 798 (1995),
Schwegmann Giant Super Markets, Inc., 119 F.T.C. 783 (1995), Red Apple
Companies, Inc., 119 F.T.C. 273 (1995). With respect to the proposed
divestiture in this matter, the proposed purchaser in Casper, Wyoming
is Supervalu, Inc., itself a supplier of independent grocers.
Under the terms of the proposed consent order, the proposed
Respondents must divest thirteen supermarkets to Smith's and two
supermarkets to Supervalue either within ten days after the date on
which Albertson's and Locomotive complete their proposed acquisition of
the outstanding shares of Buttrey or four months after the date the
proposed Respondents have signed the proposed consent order, whichever
is earlier. Alternatively, the proposed Respondents shall divest the
supermarkets to another acquirer that receives the prior approval of
the Commission within three months after the proposed consent order
becomes final. A sale to Smith's must be in accordance with the
agreement between Albertson's and Smith's dated August 10, 1998. A sale
to Supervalue must be in accordance with the agreement between
Albertson's and Supervalu dated August 12, 1998. Supervalu cannot sell
either of the two divested supermarkets within three years of when the
proposed consent order becomes final to anyone without the prior
approval of the Commission. If the proposed Respondents fail to satisfy
any of the divestiture provisions, the Commission may appoint a trustee
to divest supermarkets to satisfy the terms of the proposed consent
order.
Eight of the supermarkets that the proposed Respondents must divest
are located in Montana--two in Billings, two in Butte, and one each in
Bozeman, Great Falls, Helena, and Missoula. Seven of the supermarkets
that the proposed Respondents must divest are located in Wyoming--two
in Casper, two in Cheyenne, and one each in Cody, Gillette, and
Laramie.
The thirteen supermarkets that the proposed Respondents must divest
to Smith's in accordance with the agreement between Albertson's and
Smith's dated August 10, 1998, are the following:
1. Buttery store no. 3925 operating under the ``Buttrey Big Fresh''
trade name, which is located at 1601 Marketplace Drive, Great Falls, MT
59404 (Cascade County).
2. Buttery store no. 3934 operating under the ``Buttrey Big Fresh''
trade name, which is located at 2825 West Main Street, Bozeman, MT
59715 (Gallatin County).
3. Buttery store no. 3824 operating under the ``Buttrey Fresh
Foods'' trade name, which is located at 1000 Boulder Avenue, Helena, MT
59601 (Lewis and Clerk County).
4. Albertson's store no. 226 operating under the ``Albertson's''
trade name, which is located at 1906 Brooks Street, Missoula, MT 59801
(Missoula County).
5. Buttery store no. 3930 operating under the ``Buttrey Fresh
Foods'' trade name, which is located at 3745 Harrison Avenue, Butte, MT
59701 (Silver Bow County).
6. Buttery store no. 3985 operating under the ``Buttrey Fresh
Foods'' trade name, which is located at 600 South Excelsior Street,
Butte, MT 59701 (Silver Bow County).
7. Albertson's store no. 209 operating under the ``Albertson's''
trade name, which is located at 1633 Grand Avenue, Billing, MT 59102
(Yellowstone County).
8. Albertson's store no. 232 operating under the ``Albertson's''
trade name, which is located at 1531 Main Street, Billings, MT 59101
(Yellowstone County).
9. Albertson's store no. 805 operating under the ``Albertson's''
trade name, which is located at 1209 15th Street, Laramie, WY 82070
(Albany County).
10. Buttery store no. 3855 operating under the ``Buttrey Fresh
Foods'' trade name, which is located at 906 Camel Drive, Gillette, WY
82716 (Campbell County).
11. Albertson's store no. 863 operating under the ``Albertson's''
trade name, which is located at 3745 E. Lincoln
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Way, Cheyenne, WY 82001 (Laramie County).
12. Albertson's store no. 1804 operating under the ``Max'' trade
name, which is located at 1600 E. Pershing Blvd., Cheyenne, WY 82001
(Laramie County).
13. Buttery store no. 3941 operating under the ``Buttrey Fresh
Foods'' trade name, which is located at 1526 Rumsey Avenue, Cody, WY
82414 (Park County).
The two supermarkets that the proposed Respondents must divest to
Supervalu in accordance with the agreement between Albertson's and
Supervalu dated August 12, 1998, are the following:
1. Buttery store no. 3872 operating under the ``Buttrey Fresh
Foods'' trade name, which is located at 2101 East 12th Street, Casper,
WY 82601 (Natrona County).
2. Buttery store no. 3878 operating under the ``Buttrey Fresh
Foods'' trade name, which is located at 4075 Cy Avenue, Caspter, WY
82601 (Natrona County).
For a period of ten years from the date the proposed consent order
becomes final, the proposed Respondents are prohibited from acquiring,
without prior notice to the Commission, supermarket assets located in,
or any interest (such as stock) in any entity that owns or operates a
supermarket located in, Cascade, Gallatin, Lewis and Clerk, Missoula,
Silver Bow, and Yellowstone counties in Montana, and Albany, Campbell,
Laramie, Natrona, and Park counties in Wyoming. This provision does not
prevent the proposed Respondents from constructing new supermarket
facilities on their own; nor does it prevent the proposed Respondents
from leasing facilities not operated as supermarkets within the
previous six months.
For a period of ten years, the proposed consent order also
prohibits the proposed Respondents from entering into or enforcing any
agreement that restricts the ability of any person that acquires any
supermarket, any leasehold interest in any supermarket, or any interest
in any retail location used as a supermarket on or after January 1,
1998, to operate a supermarket at that site if such supermarket was
formerly owned or operated by the proposed Respondents in Cascade,
Gallatin, Lewis and Clark, Missoula, Silver Bow, and Yellowstone
counties in Montana, and Albany, Campbell, Laramie, Natrona, and Park
counties in Wyoming. In addition, the proposed Respondents may not
remove any equipment from a supermarket they own or operate in these
counties prior to a sale, sublease, assignment, or change in occupancy
in these counties, except in the ordinary course of business, or except
as part of any negotiation for a sale, sublease, assignment, or change
in occupancy of such supermarket.
The proposed Respondents are required to provide to the Commission
a report of compliance with the proposed consent order within thirty
(30) days following the date on which they signed the proposed consent,
every thirty (30) days thereafter until the divestitures are completed,
and annually for a period of ten years. The obligations of FS Equity
Partners under the proposed consent order will terminate upon
consummation of the proposed acquisition between Albertson's,
Locomotive, and Buttrey.
V. Terms of the Asset Maintenance Agreement
The proposed Respondents also entered into an Asset Maintenance
Agreement. Under the terms of the Asset Maintenance Agreement, from the
time Albertson's and Locomotive acquire the outstanding stock of
Buttrey until the divestitures have been completed, the proposed
Respondents must maintain the viability, competitiveness and
marketability of the assets to be divested, and must not cause their
wasting or deterioration, and cannot sell, transfer, or otherwise
impair their marketability or viability. The Asset Maintenance
Agreement specifies these obligations in detail. The obligations of FS
Equity Partners under the Asset Maintenance Agreement will terminate
upon consummation of the proposed acquisition between Albertson's,
Locomotive, and Buttrey.
VI. Opportunity for Public Comment
The proposed consent order has been placed on the public record for
sixty (60) days for receipt of comments by interested persons. Comments
received during this period will become part of the public record.
After sixty 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 consent order.
By accepting the proposed consent order subject to final approval,
the Commission anticipates that the competitive problems alleged in the
complaint will be resolved. The purpose of this analysis is to invite
public comment on the proposed consent order, including the proposed
sale of supermarkets to Smith's and Supervalu, to aid the Commission in
its determination of whether it should make final the proposed consent
order contained in the agreement. This analysis is not intended to
constitute an official interpretation of the proposed consent order or
the Asset Maintenance Agreement, nor is it intended to modify the terms
of the proposed consent order or Asset Maintenance Agreement in any
way.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 98-26028 Filed 9-28-98; 8:45 am]
BILLING CODE 6750-01-M