[Federal Register Volume 73, Number 142 (Wednesday, July 23, 2008)]
[Notices]
[Pages 42810-42813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-16871]


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FEDERAL TRADE COMMISSION

[File No. 081 0119]


Pernod Ricard S.A.; Analysis of Agreement Containing Consent 
Orders 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 August 15, 2008.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Pernod Ricard, File No. 081 0119,'' 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, N.W., 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 by following the instructions on the web-based form at http://secure.commentworks.com/ftc-Pernod. To ensure that the Commission 
considers an electronic comment, you must file it on that web-based 
form.
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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).
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    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 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.shtm).

FOR FURTHER INFORMATION CONTACT: Joseph S. Brownman, FTC Bureau of 
Competition, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580, (202) 
326-2605.

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 July 17, 2008), on the World Wide Web, at (http://www.ftc.gov/os/2008/07/index.htm). A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW, 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 Orders to Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``consent 
agreement'')from Respondent Pernod Ricard S.A. (``Pernod Ricard'') in 
connection with its proposed acquisition of V&S Vin & Sprit AB 
(Publ)(``V&S'') from The Kingdom of Sweden. Among other things, the 
consent agreement requires that Pernod Ricard, currently the 
distributor of Stolichnaya Vodka, as a condition to acquiring V&S and 
its Absolut Vodka brand, cease distributing Stolichnaya Vodka. Pernod 
Ricard obtained the rights to distribute the Stolichnaya Vodka brand 
from its owner, Spirits International BV (``SPI''), a corporation 
headquartered in Geneva, Switzerland, and organized and doing business 
under the laws of The Netherlands. Absolut Vodka and Stolichnaya Vodka 
are ``super premium'' vodkas and, for a substantial number of 
consumers, they are close price substitutes. Total annual United States 
retail sales of these two brands are about $1.9 billion.
    The Commission and Respondent Pernod Ricard also have agreed to 
entry of an Order To Hold Separate and Maintain Assets (``Hold Separate 
Order''). The Hold Separate Order requires Pernod Ricard to maintain 
the competitive viability of assets relating to the distribution of 
Stolichnaya Vodka during the six-month period that the consent 
agreement permits it to own Absolut Vodka while also distributing 
Stolichnaya. The Hold Separate Order further requires that Pernod 
Ricard refrain from exercising direction or control over the 
Stolichnaya Vodka distribution business. Pernod Ricard must 
nevertheless maintain all Stolichnaya Vodka operations in the regular 
and ordinary course in accordance with past practices. Compliance with 
the terms of the Hold

[[Page 42811]]

Separate Order will be supervised by an interim monitor.
    The proposed consent agreement will also remedy information 
exchange concerns in four additional distilled spirits markets: Cognac, 
domestic cordials, coffee liqueur, and popular gin. The Commission's 
concerns in these four markets arise because of an ongoing joint 
venture between V&S and Beam Global Spirits & Wine, Inc. (``Beam 
Global''), a Fortune Brands, Inc., subsidiary, for the joint management 
of all of their distilled spirits distribution businesses. After the 
acquisition, Pernod Ricard will assume the management function role 
held by V&S for the joint venture brands and have access to 
competitively sensitive information about Beam Global brands which 
compete with Pernod Ricard brands that are not in the joint venture. 
The consent agreement requires Pernod Ricard to set up strict 
procedures that limit the flow of information to its employees, both 
within the joint venture as well as within Pernod Ricard itself. 
Because neither party to the joint venture profits from actions by the 
joint venture in connection with the sale of products, the Commission 
does not believe that a structural remedy in the form of a required 
divestiture of Pernod Ricard's brands that compete with the Beam Global 
brands in the joint venture is necessary. Total annual United States 
retail sales in the four markets combined are about $2.4 billion.

II. Respondent Pernod Ricard

    Respondent Pernod Ricard is a corporation organized, existing and 
doing business under and by virtue of the laws of the French Republic, 
with its office and principal place of business located at 12, place 
des Etats-Unis, 75783 Paris Cedex 16, France. In the United States, 
Pernod Ricard operates through a wholly-owned subsidiary corporation, 
Pernod Ricard USA, Inc., with offices located at 100 Manhattanville 
Road, Purchase, New York 10577. Pernod Ricard's United States revenues 
from all distilled spirits products in the year ending June 30, 2007, 
totaled about $2.5 billion.
    Pernod Ricard produces distilled spirits that it distributes, 
markets, and sells in the United States. Some of its more popular brand 
lines of distilled spirits are Martell Cognac, Hiram Walker Cordials, 
and Kahlua Coffee Liqueur. Pernod Ricard also produces, markets, 
distributes, and sells, Chivas Regal, Ballantine's, The Glenlivet 
Scotches, Jameson Irish Whiskey, Beefeater Gin, and the line of Wild 
Turkey Bourbons. Pernod Ricard also markets, distributes, and sells, 
but does not produce or own, the line of Stolichnaya Vodkas.

III. V&S (the acquired company)

    V&S is a corporation wholly-owned by The Kingdom of Sweden, and is 
organized, existing and doing business under and by virtue of the laws 
of The Kingdom of Sweden. Its office and principal place of business is 
located at Formansvagen 19, S-100 74, Stockholm, Sweden. In the United 
States, V&S operates its distilled spirits business through a wholly-
owned subsidiary, The Absolut Spirits Company, Incorporated (``ASCI''). 
ASCI is a Delaware corporation with its office and principal place of 
business located at 401 Park Avenue South, New York, New York 10016. 
V&S produces and sells distilled spirits products from facilities that 
it owns and operates. The brands of V&S include the lines of Absolut 
Vodka, Level Vodka, Plymouth Gin, and Cruzan Rum. V&S's United States 
revenues from all distilled spirits products in 2007 were about $800 
million.

IV. The Future Brands Joint Venture

    Future Brands LLC (``Future Brands'') is the joint venture 
corporation of ASCI and Beam Global. Future Brands is a Delaware 
corporation with its office and principal place of business located in 
the offices of Fortune Brands at 300 Tower Parkway, Lincolnshire, 
Illinois 60069. Future Brands distributes all of the distilled spirits 
products of ASCI and Beam Global in the United States. The Future 
Brands joint venture corporation was created in 2001 and under the 
terms of that agreement, is scheduled to end in 2012. Future Brands had 
total revenues, in 2007, of about $1.48 billion.
    The brands of Beam Global include: the lines of Courvoisier Cognac; 
DeKuyper Cordials; Starbucks Coffee Liqueur; Jim Beam, Knob Creek, 
Bakers, Basil Hayden, and Booker's Bourbon; Laphroig and Teacher's 
Scotch; and Gilbey's Gin. Beam Global and ASCI sell distilled spirits 
that fall into different marketing and price point segments.
    The principal economic benefit to Beam Global and ASCI of their 
Future Brands joint venture is cost savings or efficiencies from the 
joint marketing, selling, and distribution of their products. The 
economic benefit from the actual sale of the products that are 
distributed by the Future Brands joint venture are maintained by Beam 
Global and ASCI, as brand owners, and not by Future Brands.

V. The Transaction

    On March 30, 2008, Respondent Pernod Ricard and The Kingdom of 
Sweden entered into their Share Purchase Agreement Regarding the Shares 
in V&S. Under the terms of the acquisition agreement, Pernod Ricard 
will acquire all of the shares of V&S for a sum equal to a combination 
of euros, dollars, and interest payments totaling approximately $9 
billion.

VI. The Complaint and Competitive Effects

A. The Stolichnaya - Absolut Overlap in the ``Super Premium'' Vodka 
Segment

    The Commission also made public a Complaint that it intends to 
issue. According to that Complaint, Pernod Ricard, with Stolichnaya 
Vodka, and V&S, with Absolut Vodka, are direct and significant 
competitors in the super-premium vodka segment. The Complaint further 
alleges that Stolichnaya Vodka and Absolut Vodka are vodka brands that 
are close substitutes for a substantial number of customers of these 
brands.
    The proposed acquisition raises competitive concerns because it 
would eliminate substantial competition between Pernod Ricard and V&S 
in connection with the distribution, marketing, and sale of Stolichnaya 
Vodka and Absolut Vodka. If Pernod Ricard owns Absolut Vodka while also 
being the distributor of Stolichnaya Vodka, it could profitably raise 
the price of either Absolut Vodka or Stolichnaya Vodka. Many consumers 
who would be unwilling to pay a higher price for the brand whose price 
was increased would switch to the other brand. In its Complaint, the 
Commission stated it has reason to believe that the proposed 
transaction would have anticompetitive effects and violate Section 7 of 
the Clayton Act and Section 5 of the Federal Trade Commission Act.

B. The Pernod Ricard-Beam Global Brand Overlaps and the Future Brands 
Joint Venture

    The Complaint also alleges that the proposed acquisition by 
Respondent Pernod Ricard of V&S may substantially lessen competition in 
four additional distilled spirits markets. In these markets--Cognac, 
domestic cordials, coffee liqueur, and popular gin--Pernod Ricard has 
brands that compete with the Beam Global brands that are distributed by 
Future Brands. Before its acquisition of V&S, Pernod Ricard had no 
business relationship with Future Brands. As a marketer, seller, and 
distributor of distilled spirits products similar to distilled spirits 
products, marketed, sold, and distributed by Beam Global and Future 
Brands, Pernod Ricard had

[[Page 42812]]

been a direct and substantial competitor of Beam Global and Future 
Brands.
    After its acquisition of V&S, Pernod Ricard will step into the 
competitive shoes of V&S (and ASCI) and replace ASCI as a joint venture 
partner of Beam Global. Pernod Ricard, as a joint venture partner, will 
have access to competitively sensitive information about Beam Global 
brands that compete with Pernod Ricard brands that are not in the joint 
venture, as shown in the following chart:

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         Market            Pernod Ricard Brands     Beam Global Brands
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Cognac                   Martell                  Courvoisier
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Domestic Cordials        Hiram Walker             DeKuyper
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Coffee                   Kahlua and Tia Maria     Starbucks
Liqueur
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Popular Gin              Seagram's                Gilbey's
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    Each of these markets is highly concentrated and difficult to 
enter. Pernod Ricard and Beam Global are among the two largest 
suppliers of these spirits in the United States. These companies have 
spent significant sums of money to create and maintain distinct brand 
equities.
    Beam Global and Pernod Ricard, upon becoming joint venture partners 
after the acquisition, will share in the management of Future Brands. 
Under the terms of the joint venture agreement, Pernod Ricard will be 
required to designate three of its seven member Board of Managers. This 
will mean that Pernod Ricard employees, in connection with their 
responsibilities as managers of Future Brands, will have access to 
competitively sensitive information about all the Beam Global products 
in the joint venture. These are brands with which Pernod Ricard is now, 
and after the acquisition will be, in direct and substantial 
competition. The Commission in its Complaint stated it has reason to 
believe that if Pernod Ricard obtains competitively sensitive 
information about the Beam Global brands listed in the table above, the 
proposed transaction would have anticompetitive effects and would 
violate Section 7 of the Clayton Act and Section 5 of the Federal Trade 
Commission Act. The principal anticompetitive effect is likely to be 
the ability of competitors in each of the four markets, including but 
not limited to Beam Global and Pernod Ricard, to raise prices by 
facilitating future potential coordinated interaction.

VII. The Consent Agreement

A. The Stolichnaya - Absolut Overlap in the ``Super Premium'' Vodka 
Segment

    Under the terms of the consent agreement, to remedy the competitive 
concerns associated with the Stolichnaya Vodka overlap, Pernod Ricard 
will not be permitted to have an ownership interest in Absolut Vodka 
and also keep its rights to distribute Stolichnaya Vodka. Pernod Ricard 
will therefore be required to divest its interest in distributing 
Stolichnaya Vodka within six (6) months from the date it acquires V&S. 
That divestiture will revert back to brand owner SPI.
    In the event that Pernod Ricard fails to complete the required 
divestiture within six (6) months, the Commission may appoint a 
divestiture trustee to sell the Absolut Vodka assets and business to a 
Commission-approved acquirer. The principal purpose of this alternative 
Absolut Vodka divestiture requirement is to give Pernod Ricard 
significant incentives to comply with the Stolichnaya Vodka divestiture 
requirements of the consent agreement.
    There is one exception to the requirement that Pernod Ricard divest 
the Absolut Vodka assets and business in the event it fails to comply 
with the Commission-ordered divestiture relating to Stolichnaya Vodka. 
If Pernod Ricard by court order is prohibited from divesting its 
distribution rights to Stolichnaya Vodka, instead of divesting the 
Absolut Vodka assets, Pernod Ricard would have the option of divesting 
either (a) the future anticipated income stream from its sales of 
Absolut Vodka, or (b) a stipulated amount of at least 20% of the gross 
sales revenue of Absolut Vodka. The reason for this exception relates 
to the ongoing litigation between SPI and others regarding ownership of 
the Stolichnaya trademark and related rights to sell vodka under that 
label. That litigation, which upon agreement with the parties pending 
their settlement discussions, has been stayed by court order. The 
Commission has no view on the merits of this private litigation but is 
concerned that a court possibly may require that the competitive status 
quo of the distribution of Stolichnaya Vodka be maintained beyond the 
six (6) month period that the consent order would allow Pernod Ricard 
to own Absolut Vodka and distribute Stolichnaya Vodka. The income 
stream divestiture option (or the stipulated 20% or more of gross sales 
revenue) will be for the time period commencing twelve (12) months 
after Pernod Ricard will have acquired V&S and continue until Pernod 
Ricard divests its rights to distribute Stolichnaya Vodka. The purpose 
of the income stream divestiture requirement is to remove potential 
incentives on the part of Pernod Ricard to impair the marketability of 
Stolichnaya Vodka, which because of its closeness to Absolut Vodka, 
will benefit sales of Absolut Vodka. Because a court order preventing 
Pernod Ricard from divesting its rights to distribute Stolichnaya Vodka 
would not have caused willful non-compliance with the divestiture 
requirements of the consent order, the purpose of the alternative 
divestiture requirements of the order was to prevent interim 
competitive harm, rather than incentives to divest Stolichnaya Vodka 
distribution rights. The Commission believes that the sale of the 
future income stream of Absolut Vodka under the circumstances of a 
court order preventing Pernod Ricard from divesting Stolichnaya Vodka 
distribution rights would eliminate significant incentives on the part 
of Pernod Ricard from impairing the marketability of Stolichnaya Vodka 
because Pernod Ricard would not benefit from any increase in the 
Absolut Vodka income stream during the period of its joint ownership of 
Absolut Vodka and distribution of Stolichnaya Vodka, having already 
sold (at a predetermined price) the future value of all income stream 
benefits.
    The consent agreement also requires that Pernod Ricard undertake 
certain activities to help ensure that the acquirer of the Stolichnaya 
Vodka assets and distribution business will be able to continue 
operations in a fully competitive manner. Those requirements include: 
(a) providing key Stolichnaya Vodka business employees with financial 
incentives to remain with Pernod Ricard (in order that those employees 
might then be available for hire by the acquirer); (b) providing lists 
of key employees to the acquirer; (c) for up to six (6) months, 
providing such reasonable technical assistance and training as the 
acquirer may request for the continued distribution of Stolichnaya 
Vodka; and (d) for up to six (6) months, providing the kinds of back 
office procedures to the acquirer that Pernod Ricard had already been 
undertaking for its own purposes.

B. The Pernod Ricard - Fortune Brands Overlaps and the Future Brands 
Joint Venture

    Under the terms of the consent agreement, Pernod Ricard will be 
prohibited from acquiring any business information of the Future Brands 
joint venture. To ensure that this will not occur, Pernod Ricard has 
agreed to the following firewall procedures: (a) the

[[Page 42813]]

Pernod Ricard designees to the Future Brands Board of Managers cannot 
be officers or directors of Pernod Ricard; (b) Pernod shall recommend 
to the Future Brands board that it implement database protocols 
limiting Pernod designated board member access to information about 
Beam Global brands; and (c) Pernod will allow an interim monitor to 
supervise all of the firewall-related protections and requirements.

C. The Hold Separate Order

    Accompanying the consent agreement is a Hold Separate Order. The 
purpose of this order, the terms of which Pernod Ricard has also agreed 
to undertake, is to prevent competitive harm pending the required 
divestiture of the Stolichnaya distribution agreement, and to ensure 
that the Stolichnaya Vodka assets required to be divested by Pernod 
Ricard will remain a competitively viable business. Under the terms of 
this agreement, Pernod Ricard will be required to (a) hold the 
Stolichnaya Vodka business separate and apart form all other Pernod 
Ricard business activities; (b) exercise no direction or control over 
the Stolichnaya Vodka business; (c) maintain operations of the 
Stolichnaya Vodka business, including preserving business 
relationships, in accordance with past practice; and (d) provide the 
Stolichnaya Vodka business with capital and other funds to operate at 
current levels and maintain the competitiveness of the business. The 
agreement also provides for the appointment of an interim monitor. 
Among other things, the monitor will be empowered to ensure that during 
the period of time that Pernod Ricard will own the Absolut Vodka line 
and also distribute Stolichnaya Vodka, that the Stolichnaya Vodka 
business will be separately managed from the other Pernod Ricard 
businesses.

VIII. The Opportunity for Public Comment

    The Consent Agreement has been placed on the public record for 
thirty (30) days for receipt of comments from interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
proposed consent agreement and the comments received, and will decide 
whether it should withdraw from the consent agreement or make final the 
Decision and Order.
    By accepting the consent agreement 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 
and facilitate public comment concerning the consent agreement. It is 
not intended to constitute an official interpretation of the consent 
agreement, nor is it intended to modify the terms of the orders in any 
way.
    By direction of the Commission.

Donald S. Clark
Secretary
[FR Doc. E8-16871 Filed 7-22-08: 8:45 am]
BILLING CODE 6750-01-S