[Federal Register Volume 72, Number 111 (Monday, June 11, 2007)]
[Notices]
[Pages 32099-32101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-11222]


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FEDERAL TRADE COMMISSION

[File No. 061 0257]


Rite Aid Corporation and The Jean Coutu Group (PJC), Inc.; 
Analysis of The Agreement Containing Proposed Consent Order 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 and the terms of the consent order -- embodied in the consent 
agreement -- that would settle these allegations.

DATES: Comments must be received on or before July 9, 2007.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Rite Aid and The Jean Coutu Group, File No. 
061 0257,'' to facilitate the organization of comments. A comment filed 
in paper form should include this reference both in the text and on the 
envelope, and should be mailed or delivered to the following address: 
Federal Trade Commission/Office of the Secretary, Room 135-H, 600 
Pennsylvania Avenue, NW, Washington, D.C. 20580. Comments containing 
confidential material must be filed in paper form, must be clearly 
labeled ``Confidential,'' and must comply with Commission Rule 4.9(c). 
16 CFR 4.9(c) (2005).\1\ The FTC is requesting that any comment filed 
in paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington area and at the Commission 
is subject to delay due to heightened security precautions. Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form as part of or as an attachment to email messages 
directed to the following email box: [email protected].
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC website, to the extent 
practicable, at www.ftc.gov. As a matter of discretion, the FTC makes 
every effort to remove home contact information for individuals from 
the public comments it receives before placing those comments

[[Page 32100]]

on the FTC website. More information, including routine uses permitted 
by the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).

FOR FURTHER INFORMATION CONTACT: Thomas Cohn, Leonard Gordon, or 
Jonathan Platt (212) 607-2829, Northeast Regional Office, Federal Trade 
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Commission, One Bowling Green, Suite 318, New York, New York 10004.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission 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 thirty (30) 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 June 4, 2007), on the World Wide Web, at http://www.ftc.gov/os/2007/06/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, N.W., Washington, 
D.C. 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. \\All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order to Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Order with Rite Aid 
Corporation (``Rite Aid'') and The Jean Coutu Group (PJC), Inc. (``Jean 
Coutu'') (collectively ``the Proposed Respondents''). The Agreement is 
designed to remedy the likely anticompetitive effects arising from Rite 
Aid's proposed acquisition of the Brooks and Eckerd retail pharmacies 
from Jean Coutu. The Agreement has been placed on the public record for 
thirty days for receipt of comments by interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission will again review the Agreement and 
the comments received, and will decide whether it should withdraw from 
the agreement or make the proposed Order final.
    The purpose of this analysis is to invite public comment on the 
proposed consent Order. This analysis does not constitute an official 
interpretation of the agreement and proposed Order, and does not modify 
the terms in any way. Further, the proposed consent Order has been 
entered into for settlement purposes only, and does not constitute an 
admission by the Proposed Respondents that they violated the law or 
that the facts alleged in the Complaint against the Respondents (other 
than jurisdictional facts) are true.
    On August 23, 2006, Rite Aid entered into a Stock Purchase 
Agreement whereby Rite Aid would acquire Jean Coutu's Eckerd and Brooks 
retail pharmacy chains in exchange for approximately $3.5 billion worth 
of cash and stock. As a result of the transaction, Rite Aid would hold 
100% of the common and preferred shares of The Jean Coutu Group USA, 
Inc., and Jean Coutu would acquire approximately 30% of the voting 
securities of Rite Aid.

II. Respondents

    Respondent Rite Aid, a publicly-traded Delaware corporation, is the 
third largest retail pharmacy chain in the United States. Rite Aid owns 
3,333 stores in the United States, which are primarily located on the 
East and West Coasts.
    Respondent Jean Coutu is a publicly-traded corporation 
headquartered in Longueuil, Quebec, Canada. Jean Coutu is the parent of 
The Jean Coutu Group USA, Inc., which owns and operates the Brooks and 
Eckerd retail pharmacy chains. Jean Coutu currently owns 1,517 Eckerd 
and 341 Brooks stores, which are located exclusively in the Northeast 
and Mid-Atlantic regions of the United States. The Jean Coutu stores 
collectively constitute the fourth largest retail pharmacy chain in the 
United States.

III. The Complaint

    The complaint alleges that the relevant product market in which to 
analyze the acquisition is the retail sale of pharmacy services to cash 
customers in local markets. Pharmacy services include the provision of 
medications by a licensed pharmacist who is able to provide usage 
advice and other relevant information as may be required by law. Cash 
customers are consumers of pharmacy services that do not pay a price 
negotiated by or paid through a third party (such as an insurance plan 
or a pharmacy benefits manager). Cash customers generally pay the full 
posted or list price set by a pharmacy for a prescription drug or an 
amount reflecting a discount off of those prices. The evidence 
indicates that the sale of pharmacy services to cash customers is a 
separate market from the sale of pharmacy services to customers covered 
by third party payors. This is consistent with prior Commission 
investigations regarding pharmacy services.
    The evidence indicates that pricing in the cash prescription market 
is not constrained by competitive conditions in the third party payor 
prescription market, nor by mail order pharmacies or discount cards. 
Cash customers pay prices that are consistently higher than prices on 
the same drugs paid for by third party payors, and there is a 
significant disparity in profit margins between sales to cash customers 
and sales to customers covered by third party payors. Cash customers 
are most likely unable to purchase health insurance or obtain health 
benefits from an employer in response to a post-merger price increase 
for cash prescriptions.
    Evidence indicates that cash customers typically do not travel far 
to fill prescriptions and that pharmacies evaluate competition for cash 
customers on a localized basis. Therefore, it is appropriate to analyze 
the competitive effects of the proposed transaction in local geographic 
markets. The complaint identifies the specific twenty-three relevant 
geographic markets in which to analyze the effects of the proposed 
transaction, which include individual towns, cities, boroughs, villages 
and census-designated areas, or combinations thereof.
    The local markets for the retail sale of pharmacy services to cash 
customers identified in the complaint are highly concentrated. In each 
of these markets, Rite Aid and Eckerd/Brooks are two of a small number 
of pharmacies offering cash services, and combined account for at least 
half, and up to 100 percent, of the pharmacies in the market. Moreover, 
there is evidence that a significant number of customers view the Rite 
Aid and Eckerd/Brooks pharmacies in these markets as their first and 
second choices based on their physical proximity, convenient locations 
and services offered. Therefore, the complaint alleges that the 
proposed transaction likely would allow Rite Aid to unilaterally 
exercise market power, thereby making it likely that cash pharmacy 
customers would pay higher prices in these areas.
    The complaint further alleges that entry would not be timely, 
likely or sufficient to prevent the anticompetitive effects from the 
proposed transaction.

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Certain specific factors make entry into the twenty-three cash 
prescription markets unlikely. First, because the vast majority of a 
pharmacy's profits come from sales other than cash prescriptions, 
including prescription sales to insured customers and the sale of 
front-end items (e.g., toothpaste), it is unlikely that an 
anticompetitive price increase in cash prescription sales would attract 
new entry. Second, most of the twenty-three markets are small towns or 
rural areas that may not have a sufficient number of potential 
customers to support a new pharmacy. Third, opening a new pharmacy 
requires obtaining zoning, planning and environmental approvals, which 
can take a significant amount of time. Finally, the limited 
availability of new pharmacists may serve as an impediment to entry in 
these areas.
    The complaint also alleges that the proposed acquisition, if 
consummated, may substantially lessen competition in the retail sale of 
pharmacy services to cash customers in twenty-three local areas, in 
violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. Sec.  
18, and Section 5 of the Federal Trade Commission Act, as amended, 15 
U.S.C. Sec.  45, by eliminating actual, direct, and substantial 
competition between Proposed Respondents in the relevant markets and by 
increasing the likelihood that the combined Rite Aid/Brooks-Eckerd will 
unilaterally exercise market power in the relevant markets, each of 
which increases the likelihood that the prices of pharmacy services to 
cash customers will increase, and the quality and selection of such 
services will decrease.

IV. The Terms of the Agreement Containing Consent Orders

    The proposed consent order effectively remedies the proposed 
acquisition's likely anticompetitive effects in the relevant product 
markets. Pursuant to the proposed consent order, the Proposed 
Respondents are required to divest one store in each of the twenty-
three geographic areas to a Commission-approved acquiror. Specifically, 
the proposed consent order requires the proposed Respondents to divest 
one store in each relevant geographic area to one of five up-front 
buyers including Kinney Drugs, Medicine Shoppe International, Inc. 
(``Medicine Shoppe''), Walgreen Co., Big Y, and Weis Markets. Kinney 
Drugs is an employee-owned company headquartered in New York that has 
80 retail drug stores in central and northern New York and Vermont. 
Medicine Shoppe, headquartered in Missouri, operates 24 company-owned 
apothecary-style drugs stores and is the franchisor of approximately 
1,000 apothecary-style franchised locations throughout the country. 
Walgreen Co., headquartered in Illinois, is the second largest retail 
drug store chain in the U.S., operating approximately 5,675 stores in 
48 states and Puerto Rico. Big Y is one of New England's largest 
independent supermarket chains, with more than 50 locations throughout 
Massachusetts and Connecticut. Weis Markets is a Pennsylvania-based 
supermarket that operates more than 150 grocery stores, some of which 
contain pharmacy counters, in Pennsylvania, Maryland, New Jersey, West 
Virginia, and New York. Each of the up-front buyers is competitively 
and financially viable and each is well qualified to operate the 
divested stores. As a result, the required divestitures to these 
companies will be sufficient to maintain competition in the relevant 
markets. A list of the specific pharmacies that the Proposed 
Respondents must divest to each of the up-front buyers is attached as 
Schedule A to the proposed Decision and Order.
    The proposed consent order requires the divestitures to occur no 
later than twenty days, or, in the case of the divestitures to Medicine 
Shoppe, no later than forty days after the acquisition is consummated, 
or four months after the date on which the Proposed Respondents sign 
the proposed consent order, whichever is earlier. However, if the 
Proposed Respondents consummate the divestitures to any of the up-front 
buyers during the public comment period, and if, at the time the 
Commission decides to make the proposed consent order final, the 
Commission notifies the Proposed Respondents that any of the up-front 
buyers is not an acceptable acquirer or that any up-front buyer 
agreement is not an acceptable manner of divestiture, then the Proposed 
Respondents must immediately rescind the transaction in question and 
divest those assets within three months of the date the proposed 
consent order becomes final. At that time, the Proposed Respondents 
must divest those assets only to an acquirer, and only in a manner, 
that receives the prior approval of the Commission.
    The proposed consent order also contains an Order to Maintain 
Assets. This will serve to: (1) Maintain the full economic viability 
and marketability of the pharmacies identified for divestitures, (2) 
minimize any risk of loss of competitive potential for such businesses, 
and (3) prevent the destruction, removal, wasting, deterioration, or 
impairment of any of these assets except for ordinary wear and tear.
    The proposed consent order also gives the Commission the power to 
appoint a trustee to divest any pharmacies identified in the order that 
Proposed Respondents have not divested to satisfy the requirements of 
the order. In addition, the proposed consent order permits the 
Commission to seek civil penalties against the Proposed Respondents for 
non-compliance with the order.
    For a period of ten years from the date the proposed consent order 
becomes final, the Proposed Respondents are required to provide written 
notice to the Commission prior to acquiring any ownership or leasehold 
interest in any facility that has operated as a pharmacy within the 
previous six months and is located within five miles of any store to be 
divested pursuant to the proposed consent order. The ten-year written 
notice requirement also applies to the acquisition by the Proposed 
Respondents of any prescription files, stock, share capital, equity, or 
other interest in any entity that owns any interest in or operates any 
pharmacy that is located within five miles of any store to be divested 
pursuant to the proposed consent order and has been in existence as a 
pharmacy within the previous six months. This provision does not 
restrict the Proposed Respondents from constructing new pharmacies in 
the relevant markets; nor does it restrict the Proposed Respondents 
from leasing facilities not operated as pharmacies within the previous 
six months.
    The proposed consent order further prohibits the Proposed 
Respondents, for a period of ten years, from entering into or enforcing 
any agreement that restricts the ability of any person that acquires 
any pharmacy, any leasehold interest in any pharmacy, or any interest 
in any retail location used as a pharmacy on or after January 1, 2007 
in the relevant markets to operate a pharmacy at that site if such 
pharmacy was formerly owned or operated by the Proposed Respondents.
    The Proposed Respondents are required to provide to the Commission 
a report of compliance with the proposed consent order within thirty 
days following the date on which they sign the proposed consent order, 
every thirty days thereafter until the divestitures are completed, and 
annually for ten years.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. E7-11222 Filed 6-8-07: 8:45 am]
BILLING CODE 6750-01-S