[Federal Register Volume 79, Number 103 (Thursday, May 29, 2014)]
[Notices]
[Pages 30881-30897]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-12397]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States of America v. ConAgra Foods, Inc, et al.; Proposed
Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Hold Separate Stipulation and Order, and Competitive Impact Statement
have been filed with the United States District Court for the District
of Columbia in United States of America v. ConAgra Foods, Inc., et al.,
Civil Action No. 1:14-cv-823. On May 20, 2014, the United States filed
a Complaint alleging that the combination of the wheat flour milling
assets of ConAgra Foods, Inc. and Horizon Milling, LLC (a joint venture
between Cargill, Inc. and CHS, Inc.) to form a joint venture to be
known as Ardent Mills would violate Section 7 of the Clayton Act, 15
U.S.C. 18, and Section 1 of the Sherman Act, 15 U.S.C. 1. The proposed
Final Judgment, filed the same time as the Complaint, requires Ardent
[[Page 30882]]
Mills to divest flour mills located in Los Angeles, California; New
Prague, Minnesota; Oakland, California; and Saginaw, Texas, along with
certain tangible and intangible assets.
Copies of the Complaint, proposed Final Judgment and Competitive
Impact Statement are available for inspection at the Department of
Justice, Antitrust Division, Antitrust Documents Group, 450 Fifth
Street NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-2481),
on the Department of Justice's Web site at http://www.usdoj.gov/atr,
and at the Office of the Clerk of the United States District Court for
the District of Columbia. Copies of these materials may be obtained
from the Antitrust Division upon request and payment of the copying fee
set by Department of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, including the name of the submitter, and
responses thereto, will be posted on the U.S. Department of Justice,
Antitrust Division's internet Web site, filed with the Court and, under
certain circumstances, published in the Federal Register. Comments
should be directed to Maribeth Petrizzi, Chief, Litigation II Section,
Antitrust Division, Department of Justice, 450 Fifth Street NW., Suite
8700, Washington, DC 20530.
Patricia A. Brink,
Director of Civil Enforcement.
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, United States Department of Justice,
Antitrust Division, 450 Fifth Street N.W., Suite 8700, Washington,
D.C. 20530, Plaintiff, v. CONAGRA FOODS, INC., One ConAgra Drive,
Omaha, Nebraska 68102, HORIZON MILLING, LLC, 15407 McGinty Road
West, Wayzata, Minnesota 55391, CARGILL, INCORPORATED, 15407 McGinty
Road West, Wayzata, Minnesota 55391, and CHS INC., 5500 Cenex Drive,
Inver Grove Heights, Minnesota 55077, Defendants.
Case No.: 1:14-cv-00823
Judge: Hon. Ketanji Brown Jackson
Filed: 05/20/2014
COMPLAINT
The United States of America (``United States''), acting under the
direction of the Attorney General of the United States, brings this
civil antitrust action against Defendants ConAgra Foods, Inc.
(``ConAgra''), Horizon Milling, LLC (``Horizon''), Cargill,
Incorporated (``Cargill''), and CHS Inc. (``CHS'') to enjoin the
formation of a flour milling joint venture to be known as Ardent Mills
(``Ardent Mills'' or ``the joint venture'').
Ardent Mills would be formed by combining the flour milling assets
of Horizon (a joint venture between Cargill and CHS) and ConAgra Mills
(a subsidiary of ConAgra). Horizon and ConAgra Mills are two of the
three largest flour millers in the United States, as measured by
capacity. Horizon and ConAgra Mills are significant competitors in the
sale of hard and soft wheat flour in Southern California and Northern
Texas; they also are significant competitors in the sale of hard wheat
flour in Northern California and the Upper Midwest. The formation of
Ardent Mills likely would lessen competition in each of these markets
in violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18, and
Section 1 of the Sherman Act, 15 U.S.C. Sec. 1.
I. JURISDICTION, VENUE, AND COMMERCE
1. The United States brings this action under Section 15 of the
Clayton Act, 15 U.S.C. Sec. 25, and Section 4 of the Sherman Act, 15
U.S.C. Sec. 4, to prevent and restrain Defendants from violating
Section 7 of the Clayton Act, 15 U.S.C. Sec. 18, and Section 1 of the
Sherman Act, 15 U.S.C. Sec. 1.
2. Defendants produce and sell flour in the flow of interstate
commerce. Defendants' activities in the production and sale of flour
substantially affect interstate commerce. This Court has subject matter
jurisdiction over this action pursuant to Section 15 of the Clayton
Act, 15 U.S.C. Sec. 25; Section 4 of the Sherman Act, 15 U.S.C. Sec.
4; and 28 U.S.C. Sec. Sec. 1331, 1337(a), and 1345.
3. Defendants have consented to venue and personal jurisdiction in
this judicial district.
II. THE DEFENDANTS AND THE TRANSACTION
4. ConAgra is incorporated in Delaware and has its headquarters in
Omaha, Nebraska. ConAgra is one of the largest food companies in the
United States. Its ConAgra Mills subsidiary makes several types of
flour, including hard wheat flour and soft wheat flour. ConAgra Mills
operates twenty-one wheat flour mills in the United States. It is one
of the three largest wheat flour millers in the country, with a total
daily wheat flour capacity of approximately 225,000 hundred weight
(``cwt''). In 2012, ConAgra reported revenues of $13.3 billion; ConAgra
Mills reported revenues of $1.8 billion.
5. Horizon is a joint venture formed in 2002 by Cargill and CHS
that is headquartered in Wayzata, Minnesota. Cargill owns 76 percent of
Horizon and CHS owns 24 percent of Horizon. Horizon makes several types
of flour, including hard wheat flour and soft wheat flour. It is one of
the three largest wheat flour millers in the United States, controlling
twenty wheat flour mills with a total daily wheat flour capacity of
approximately 270,000 cwt. In 2012, Horizon reported revenues of
approximately $2.5 billion.
6. Cargill is a privately held company that is incorporated in
Delaware and has its headquarters in Wayzata, Minnesota. Cargill
produces agricultural products and food ingredients; it also markets
wheat to flour mills. All of Cargill's flour mills were contributed to
the Horizon joint venture, which presently includes fifteen of
Cargill's former wheat flour mills. In 2012, Cargill reported revenues
of $133.8 billion.
7. CHS is incorporated in Minnesota and has its headquarters in
Inver Grove Heights, Minnesota. It sells, among other things, grains
and grain marketing services, animal feed, foods, and food ingredients;
it also markets wheat to flour mills. CHS owns five wheat flour mills
in the United States, all of which are leased to the Horizon joint
venture. In 2012, CHS reported revenues of $40.1 billion.
8. Pursuant to a March 4, 2013 Master Agreement, Ardent Mills would
combine the flour milling operations of ConAgra Mills and Horizon. The
joint venture would be 44 percent owned by ConAgra, 44 percent owned by
Cargill, and 12 percent owned by CHS. Ardent Mills would own forty-one
wheat flour mills in the United States. It would have annual sales of
more than $3 billion, and assets worth more than $2.5 billion.
III. BACKGROUND
9. Wheat flour is an important ingredient in many baked goods. The
two primary types of wheat flour--hard wheat flour and soft wheat
flour--are distinguished by their gluten content. ``Hard'' wheat flour
has a high gluten content, which makes it well suited for baking bread,
rolls, bagels, pizza dough, and similar baked goods. Gluten is a
protein that helps trap gasses during the leavening process, permitting
baked goods to rise, and giving them a tougher, chewier texture.
``Soft'' wheat flour has a low gluten content, which makes it well
suited for baked goods that are lighter and flakier than bread and
rolls, such as cakes, cookies, and crackers, which have a tender,
crumbly texture.
10. Wheat flour is produced by grinding wheat into a fine powder.
The process starts by feeding wheat kernels into a flour mill's
``breaker rollers,'' which crack open the wheat kernels, separating the
exterior hull from the
[[Page 30883]]
interior endosperm of each kernel. The separated exterior hulls are
known as wheat middlings, or ``midds,'' and typically are sold for use
in the manufacture of animal feed. The interior endosperm is further
ground between rollers to produce flour. Although some flour mills,
known as ``swing'' mills, are set up to produce hard and soft wheat
flour, most flour mills are designed to produce only one or the other.
Hard and soft wheat flour generally cannot be produced on the same
equipment without a substantial loss of efficiency, which increases the
cost of producing flour.
11. Finished wheat flour is sold to industrial bakers, food service
companies, distributors, and retail sellers. Larger flour customers
typically purchase flour pursuant to a formal request for proposal or a
less formal bidding-type solicitation. For such purchases, large flour
customers often specify the characteristics of the flour they desire to
buy (including protein level, an indicator of gluten content), and they
seek to negotiate the lowest price possible for the type of flour they
desire. Smaller customers typically purchase standard types of flour at
a price based on a miller's daily or weekly price sheet. Smaller
customers often compare the delivered price offered by rival millers to
determine the best available flour price, and they often can negotiate
a discount off of list prices by playing millers against one another.
12. The price of delivered wheat flour has five key components: (i)
the price of wheat, which is usually determined by the price on an
organized wheat market; (ii) the ``basis,'' which accounts for the
difference between the organized wheat market price and the local price
for a miller; (iii) the ``millfeed credit,'' which is based on the
price at which a miller can sell wheat middlings; (iv) transportation
costs, i.e., the cost of delivering flour from the mill to the
customer; and (v) the ``block,'' which covers the cost of converting
wheat into flour.
13. The first four components largely are determined by a mill's
location or market forces that are beyond a miller's control, and
account for the overwhelming majority of the price of delivered flour.
Although competing millers seek to minimize each of these components to
keep the delivered price of flour low, the block--which is a relatively
small portion of the total delivered price of flour--is the primary
component on which millers compete.
14. Although transportation costs also are a relatively small
portion of the cost of delivered flour, they often determine whether a
flour miller can supply a customer cost effectively. Customers
frequently find that the most cost competitive flour millers are those
with nearby mills, whose flour transportation costs are low relative to
those of more distant flour mills. Although flour can travel long
distances by rail, the added cost of doing so may prevent distant mills
from making substantial sales to local customers. Thus, competition for
flour sales to a customer takes place largely among millers located
within approximately 150 to 200 miles of a customer. Within that area,
competition among millers largely takes place over the size of the
block offered to the customer, all else equal.
IV. RELEVANT MARKETS
A. Relevant Product Markets
15. Hard wheat flour is a relevant product market and a line of
commerce under Section 7 of the Clayton Act, and Section 1 of the
Sherman Act. Hard wheat flour has specific applications for which other
types of flour cannot be used. A baker of crusty, chewy baked goods,
such as bread, bagels, or pizza dough, cannot use soft wheat flour
because the finished product will not ``rise'' or have the texture that
consumers expect. As a result, a flour customer who requires hard wheat
flour would not substitute other products in response to a small but
significant and nontransitory increase in the price of hard wheat
flour.
16. Soft wheat flour is a relevant product market and line of
commerce under Section 7 of the Clayton Act, and Section 1 of the
Sherman Act. Soft wheat flour has specific applications for which other
types of flour cannot be used. A baker of lighter, flakier baked goods,
such as cakes, cookies, crackers, or pastries, cannot use hard wheat
flour in place of soft wheat flour because the finished product will
not remain flat--as is desirable for crackers or pastries--or have the
texture that consumers expect. As a result, a flour customer who
requires soft wheat flour would not substitute other products in
response to a small but significant and nontransitory increase in the
price of soft wheat flour.
B. Relevant Geographic Markets
17. Flour millers can price differently to customers in different
locations. Hard and soft wheat flour sales typically are negotiated by
a miller and an individual customer. Flour millers take into account
rivals' mills that can economically supply a customer when determining
the price at which to sell to that customer. Thus, a miller will charge
a higher price to a customer in an area with few supply options
relative to a customer in an area with many supply options.
18. Flour customers are unlikely to arbitrage in response to such
differential pricing. The ability of customers to arbitrage by securing
flour from customers in other areas is limited by transportation costs,
which limit the distance that flour can economically be shipped.
Moreover, arbitrage by securing flour from customers in other areas
entails increased food safety and quality risks. As a result, most
customers would not find it desirable or cost effective to buy flour
from customers in other areas.
19. Because flour millers can price differentially and customers
are unlikely to arbitrage, flour millers can price discriminate. In the
presence of price discrimination, relevant geographic markets may be
defined by reference to the location of customers. In particular, the
relevant geographic markets for hard and soft wheat flour are those
areas of the country encompassing the locations of customers who could
be similarly targeted for a price increase.
20. A hypothetical monopolist flour miller could impose on
customers a small but significant nontransitory price increase in each
of the following areas (which encompass certain metropolitan
statistical areas): Northern California (encompassing Santa Rosa-
Petaluma, Napa, Sacramento-Arden-Arcade-Roseville, Stockton, Vallejo-
Fairfield, San Francisco-Oakland-Fremont, Santa Cruz-Watsonville, San
Jose-Sunnyvale-Santa Clara, Merced, and Modesto), Southern California
(encompassing Los Angeles-Long Beach-Santa Ana, Riverside-San
Bernardino-Ontario, and San Diego-Carlsbad-San Marcos), Northern Texas
(encompassing Dallas-Fort Worth-Arlington), and the Upper Midwest
(encompassing Minneapolis-St. Paul-Bloomington, Eau Claire, Madison, La
Crosse, and Rochester). Therefore, each area is a relevant geographic
market under Section 7 of the Clayton Act, and Section 1 of the Sherman
Act.
V. MARKET SHARES AND CONCENTRATION
21. Ardent Mills would own a substantial share of flour milling
capacity serving each relevant market. Because transportation costs
limit the ability of distant millers to compete with local millers for
customers, competition for flour sales largely takes place among
millers with milling capacity located within 150 to 200 miles of a
customer. Thus, milling capacity within 200 miles of key cities within
each geographic area is a useful basis on
[[Page 30884]]
which to estimate market shares and concentration, and it approximates
sales shares in each geographic market. Each 200-mile area around a
city encompasses those flour millers most likely to compete for sales
in each geographic market, and shares based on capacity within 200
miles of each city are indicative of the likely competitive effects for
customers in the broader relevant markets.
22. In Northern California, Ardent Mills would own approximately 70
percent of hard wheat flour milling capacity within 200 miles of San
Francisco. In Southern California, it would own more than 40 percent of
hard wheat flour milling capacity, and approximately 70 percent of soft
wheat flour milling capacity, within 200 miles of Los Angeles. In
Northern Texas, it would own more than 75 percent of hard wheat flour
milling capacity, and 100 percent of the soft wheat flour milling
capacity, within 200 miles of Dallas/Ft. Worth. In the Upper Midwest,
it would own more than 60 percent of hard wheat flour milling capacity
within 200 miles of Minneapolis. Given that transportation costs limit
the ability of more distant mills to compete in these areas, Ardent
Mills's large capacity shares would result in Ardent Mills having a
large share of sales in these areas.
23. Based on capacity within 200 miles of key cities in each
market, formation of Ardent Mills would increase the Herfindahl-
Hirschman Index (``HHI''),\1\ a standard measure of market
concentration, by more than 200 points to more than 2,500 points in the
relevant markets. For San Francisco, formation of the joint venture
would increase the HHI for hard wheat flour to more than 5,000. For Los
Angeles, the joint venture would increase the HHI for hard wheat flour
to more than 2,500; and the HHI for soft wheat flour to more than
5,500. For Dallas/Ft. Worth, the HHI for the hard wheat flour would
increase to more than 6,000; and the HHI for soft wheat flour would
increase to 10,000. For Minneapolis, the HHI for hard wheat flour would
increase to more than 4,500. As a result, the joint venture should be
presumed likely to enhance market power in each of the relevant
markets.
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\1\ See U.S. Dep't of Justice and Federal Trade Commission,
Horizontal Merger Guidelines Sec. 5.3 (2010), available at http://www.justice.gov/atr/public/guidelines/hmg-2010.html. The HHI is
calculated by squaring the market share of each firm competing in
the market, then summing the resulting numbers. The HHI takes into
account the relative size distribution of the firms in a market; it
increases both as the number of firms in the market decreases and as
the disparity in size between those firms increases. The HHI
approaches zero in markets with a large number of participants of
relatively equal size and reaches a maximum of 10,000 points in
markets controlled by a single firm.
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VI. ANTICOMPETITIVE EFFECTS OF THE JOINT VENTURE
A. Formation of Ardent Mills Would Eliminate Head-to-Head Competition
Between Horizon and ConAgra
24. The formation of Ardent Mills would eliminate head-to-head
competition between ConAgra Mills and Horizon in the relevant markets.
ConAgra Mills and Horizon routinely compete by offering lower prices to
their customers, and customers have secured lower prices by playing
ConAgra Mills and Horizon against one another. The formation of Ardent
Mills would eliminate that competition, resulting in higher hard wheat
flour prices for customers in Northern California, Southern California,
Northern Texas, and the Upper Midwest, and higher soft wheat flour
prices for customers in Southern California and Northern Texas.
25. Horizon and ConAgra Mills operate mills that are close to one
another in the relevant geographic markets, and that are among those
closest to many customers in those markets. Because their mills are the
closest mills to many customers, Horizon's and ConAgra's delivered
flour costs tend to be lower than those of their rivals' more distant
mills. Moreover, because their mills are located close to one another,
Horizon's and ConAgra's flour transportation costs tend to be similar.
As a result of the proximity of their mills to one another--and to one
another's customers--Horizon and ConAgra frequently are among the
lowest-cost flour suppliers for customers in the relevant areas, and
they compete aggressively against one another to make sales in those
areas. That competition would be lost with the formation of Ardent
Mills.
B. Formation of Ardent Mills Would Increase the Likelihood of
Anticompetitive Capacity Closures
26. Relative to stand-alone Horizon and ConAgra Mills, the joint
venture would increase the incentive and ability of Ardent Mills to
close hard and soft wheat flour milling capacity serving the relevant
markets. With a larger base of mills to benefit from increased flour
prices, the joint venture would have an increased incentive to shut
down capacity. The joint venture also would have mills with a wider
array of operating costs from which to choose capacity to shut down,
increasing the ability of the joint venture to profitably shut down
capacity or entire mills. By creating a larger portfolio of flour mills
with differing costs, formation of the joint venture would make it more
likely that Ardent Mills would find it profitable to close a higher-
cost mill to raise hard or soft wheat flour prices. Thus, the joint
venture would increase the likelihood of capacity closure, which would
tighten supply relative to demand, inducing Ardent Mills and rival
millers to compete less aggressively for flour sales, ultimately
increasing flour prices to customers in the relevant geographic
markets.
C. Formation of Ardent Mills Would Increase the Likelihood of
Anticompetitive Coordination
27. The formation of Ardent Mills would increase the likelihood of
anticompetitive coordination among flour millers. Several features of
hard and soft wheat flour markets render them susceptible to
anticompetitive coordination. First, the markets are transparent, which
gives millers insight into their rivals' costs, prices, output, and
capacity utilization levels. Second, hard wheat flour and soft wheat
flour are relatively homogeneous products that are purchased
frequently. Third, the demand for hard and soft wheat flour is
relatively inelastic. Finally, larger flour millers compete against one
another to supply hard and soft flour in multiple geographic markets.
28. The relevant markets already are highly concentrated, and the
formation of the joint venture would significantly increase that
concentration by reducing the number of substantial millers in each of
the relevant markets. As a result, the formation of Ardent Mills would
allow it and its few remaining rivals to more easily identify and
account for the competitive strategies of one another, making it easier
for them to coordinate on capacity, price, or other competitive
strategies in the relevant markets, which already are susceptible to
coordination. This, in turn, will make coordination more likely and
more durable, increasing the likelihood that hard and soft wheat flour
prices would increase in the relevant markets.
29. The formation of Ardent Mills also would permit information
exchanges between CHS, Cargill, and the joint venture that would
facilitate coordination in the relevant markets. CHS and Cargill
propose entering into side agreements to supply Ardent Mills with
wheat. These agreements include terms that, in principle, would permit
CHS, and Cargill to provide Ardent Mills with detailed information
about rival millers' wheat purchases, giving the joint venture greater
insight into its
[[Page 30885]]
rivals' costs. As a result, the side agreements would make it easier
for Ardent Mills to understand the competitive strategies of its
rivals, which would make coordination more likely and durable,
increasing the likelihood that hard and soft wheat flour prices would
increase in the relevant markets.
VII. ENTRY
30. Entry would not be likely, timely, or sufficient to offset the
anticompetitive effects of the formation of Ardent Mills. Flour is a
mature industry with stable demand and margins, which means that the
incentive to enter the relevant markets with a new mill, or with
substantial new capacity at an existing mill, is small. It also is
unlikely that entry by more distant mills delivering flour by rail will
be timely, likely, or sufficient due to rail delivery's additional cost
and inconvenience, which renders it an unacceptable option for many
customers.
VIII. VIOLATIONS ALLEGED
A. Violation of Section 7 of the Clayton Act
31. The proposed joint venture likely would substantially lessen
competition in the relevant markets, in violation of Section 7 of the
Clayton Act, 15 U.S.C. Sec. 18.
32. Unless enjoined, the joint venture likely would have the
following anticompetitive effects, among others:
a. competition between ConAgra and Horizon in the relevant markets
would be eliminated;
b. competition in the relevant markets likely would be
substantially lessened;
c. reductions in milling capacity would be more likely;
d. coordination in the relevant markets would be easier and more
likely; and, as a result,
e. hard wheat flour prices would increase for customers in Northern
California, Southern California, Northern Texas, and the Upper Midwest;
and soft wheat flour prices would increase for customers in Southern
California and Northern Texas.
B. Violation of Section 1 of the Sherman Act
33. ConAgra and Horizon's agreement to combine their flour-milling
assets and operations through the Ardent Mills joint venture, to
eliminate competition between them, and not to compete against each
other unreasonably restrains trade, and likely would continue to
unreasonably restrain trade, in the relevant markets in violation of
Section 1 of the Sherman Act, 15 U.S.C. Sec. 1.
IX. REQUESTED RELIEF
34. The United States requests that this Court:
a. adjudge and decree that the Ardent Mills joint venture would be
unlawful and violate Section 7 of the Clayton Act, 15 U.S.C. Sec. 18;
b. adjudge and decree that the Ardent Mills joint venture would be
unlawful and violate Section 1 of the Sherman Act, 15 U.S.C. Sec. 1;
c. preliminarily and permanently enjoin and restrain Defendants and
all persons acting on their behalf from effectuating the Ardent Mills
joint venture, or from entering into or carrying out any other
contract, agreement, plan, or understanding, the effect of which would
be to create such a joint venture;
d. award the United States its costs for this action; and
e. award the United States such other and further relief as the
Court deems just and proper.
Dated: May 20, 2014
Respectfully submitted,
FOR PLAINTIFF UNITED STATES OF AMERICA:
/s/--------------------------------------------------------------------
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RENATA B. HESSE
Acting Assistant Attorney General.
/s/--------------------------------------------------------------------
DAVID I. GELFAND
Deputy Assistant Attorney General.
/s/--------------------------------------------------------------------
PATRICIA A. BRINK
Director of Civil Enforcement.
/s/--------------------------------------------------------------------
MARIBETH PETRIZZI
(D.C. BAR # 435204), Chief, Litigation II Section.
/s/--------------------------------------------------------------------
DOROTHY B. FOUNTAIN
(D.C. BAR # 439469), Assistant Chief, Litigation II Section.
/s/--------------------------------------------------------------------
MARK J. NIEFER*
(D.C. BAR # 470370), Attorney, United States Department of Justice,
Antitrust Division, 450 Fifth Street NW., Suite 8000, Washington, DC
20530, Telephone: (202) 307-6381, Facsimile: (202) 616-2441, E-mail:
[email protected].
SUSAN L. EDELHEIT
(D.C. BAR # 250720)
CHRISTINE A. HILL
ANGELA L. HUGHES
(D.C. BAR # 303420)
MICHELLE A. LIVINGSTON
(D.C. BAR # 461268)
JOHN M. NEWMAN
JILL A. PTACEK
JAMES A. RYAN
CHINITA M. SINKLER
Attorneys for the United States.
* Attorney of Record.
UNITED STATES OF AMERICA
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA Plaintiff, v.CONAGRA FOODS, INC.,
HORIZON MILLING, LLC, CARGILL, INCORPORATED, and CHS INC.,
Defendants.
Case No.: 1:14-cv-00823
Judge: Hon. Ketanji Brown Jackson
Dated: May 20, 2014
COMPETITIVE IMPACT STATEMENT
Plaintiff United States of America (``United States''), pursuant to
Section 2(b) of the Antitrust Procedures and Penalties Act (``APPA'' or
``Tunney Act''), 15 U.S.C. Sec. 16(b)-(h), files this Competitive
Impact Statement relating to the Proposed Final Judgment submitted for
entry in this civil antitrust proceeding.
I. NATURE AND PURPOSE OF THE PROCEEDING
Defendants ConAgra Foods, Inc. (``ConAgra''), Cargill, Incorporated
(``Cargill''), and CHS Inc. (``CHS'') entered into a Master Agreement,
dated March 4, 2013, which would combine the wheat flour milling assets
of ConAgra and defendant Horizon Milling, LLC (``Horizon'') (a joint
venture between Cargill and CHS) to form a joint venture to be known as
Ardent Mills (``Ardent Mills'' or ``the joint venture'').
The United States filed a civil antitrust Complaint on May 20,
2014, seeking to enjoin the joint venture. The Complaint alleges that
the likely effect of the formation of Ardent Mills would be to
substantially lessen competition for the provision of hard wheat flour
to customers in Northern California, Southern California, Northern
Texas, and the Upper Midwest, and soft wheat flour to customers in
Southern California and the Northern Texas, in violation of Section 7
of the Clayton Act, 15 U.S.C. Sec. 18, and Section 1 of the Sherman
Act, 15 U.S.C. Sec. 1.
At the same time the Complaint was filed, the United States also
filed a Proposed Final Judgment, which is designed to eliminate the
anticompetitive effects of the joint venture. Under the Proposed Final
Judgment, which is explained more fully below, Defendants are required
to
[[Page 30886]]
divest four flour mills located in Oakland, California; Los Angeles,
California; Saginaw, Texas; and New Prague, Minnesota. The Proposed
Final Judgment also prohibits Cargill, CHS, and ConAgra from disclosing
to Ardent Mills certain non-public information relating to wheat sales
to, and wheat use by, Cargill, CHS, and ConAgra wheat customers.
In a Hold Separate Stipulation and Order filed at the same time as
the Complaint and Proposed Final Judgment, the United States and
Defendants have stipulated that the Proposed Final Judgment may be
entered after compliance with the APPA.\2\ Entry of the Proposed Final
Judgment would terminate this action, except that the Court would
retain jurisdiction to construe, modify, or enforce the provisions of
the Proposed Final Judgment and to punish violations thereof.
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\2\ The Hold Separate Stipulation and Order requires Defendants
to hold separate their entire wheat flour milling businesses until
after the divestitures required by the Proposed Final Judgment have
occurred.
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II. DESCRIPTION OF THE EVENTS GIVING RISE TO THE ALLEGED VIOLATION
A. Defendants and the Proposed Joint Venture
ConAgra is a Delaware corporation headquartered in Omaha, Nebraska.
It is one of the largest food companies in the United States. Its
ConAgra Mills subsidiary makes multiple types of flour, including hard
wheat flour and soft wheat flour. ConAgra Mills operates twenty-one
wheat flour mills in the United States. In terms of capacity, ConAgra
Mills is one of the three largest wheat flour millers in the United
States, capable of producing approximately 225,000 hundred weights
(``cwt''), or about 23 million pounds, of flour per day. In 2012,
ConAgra reported revenues of $13.3 billion; ConAgra Mills reported
revenues of $1.8 billion.
Horizon is a joint venture between Cargill and CHS that is
headquartered in Wayzata, Minnesota. Cargill owns 76 percent of
Horizon, and CHS owns the remaining 24 percent of Horizon. Horizon
makes several types of flour, including hard wheat flour and soft wheat
flour. In terms of capacity, Horizon is one of the three largest wheat
flour millers in the country, with twenty mills in the United States,
capable of producing approximately 270,000 cwt, or about 27 million
pounds, of flour per day. In 2012, Horizon reported revenues of
approximately $2.5 billion.
Cargill is a privately held Delaware corporation headquartered in
Wayzata, Minnesota. Cargill produces agricultural products and food
ingredients; it also markets wheat to flour mills. The Horizon joint
venture includes fifteen mills located in the United States that were
contributed by Cargill. In 2012, Cargill reported revenues of $133.8
billion.
CHS is a Minnesota corporation headquartered in Inver Grove
Heights, Minnesota. It sells, among other things, grains and grain
marketing services (including wheat for flour milling), animal feed,
food, and food ingredients; it also markets wheat to flour mills. The
Horizon joint venture includes five mills owned by CHS, located in the
United States, leased by CHS to Horizon. In 2012, CHS reported revenues
of $40.1 billion.
Under the March 4, 2013 Master Agreement, ConAgra, Cargill, and CHS
agreed to combine the wheat flour milling assets of ConAgra Mills and
Horizon to form Ardent Mills. ConAgra and Cargill each would own a 44
percent share of the joint venture, and CHS would own the remaining 12
percent share. Under the Master Agreement, Cargill and CHS also would
share with Ardent Mills certain information regarding wheat markets.
The formation of the joint venture likely would substantially lessen
competition as a result of Defendants' combination of their wheat flour
milling assets. This proposed joint venture is the subject of the
Complaint and Proposed Final Judgment filed by the United States on May
20, 2014.
B. Industry Background
1. Flour Milling and Flour Uses
Wheat flour is an important ingredient in many baked food products.
It is made by grinding wheat into a fine powder. The process begins
with a miller feeding wheat kernels into a flour mill's ``breaker
rollers,'' which crack open the hard outer shell of the wheat kernel,
separating the exterior hull from the interior endosperm of each
kernel. The separated exterior hulls, known as wheat middlings or
``midds,'' often are sold to manufacturers of animal feed, who
typically mix the midds with other inputs to manufacture feed. The
interior endosperm is further ground and sifted to produce wheat flour.
Hard wheat flour is milled from hard wheat, which has high gluten
content and a hard endosperm. Soft wheat flour is milled from soft
wheat, which has low gluten content and a soft endosperm. Soft wheat
generally does not flow as easily through a mill as hard wheat, which
necessitates certain design features in a soft wheat flour mill that
are not required in a hard wheat flour mill. As a result, most flour
mills are designed to produce hard wheat flour or soft wheat flour.
Some mills can produce hard wheat flour and soft wheat flour using two
or more milling units, each of which is dedicated to milling one type
of flour using the appropriate equipment. Finally, some mills, known as
``swing'' mills, can produce both types of flour using the same
equipment. The production of flour in a swing mill, however, usually
entails a loss of efficiency, which increases the costs of producing
wheat flour, making a mill less competitive.
The different gluten content of hard and soft wheat flour limits
each to certain baked goods applications. Gluten is a type of protein
found only in wheat that traps gasses produced during leavening and
baking. The greater the gluten content of flour, the more it will rise
during baking and the chewier will be the finished product. Hard wheat
flour's high gluten content makes it well-suited for use in bread,
rolls, bagels, pizza dough, and similar goods. Soft wheat flour, which
has lower gluten content, is well-suited for use in lighter, flakier
products like cakes, cookies, crackers, and pastries. Substituting hard
wheat flour for soft wheat flour (or vice versa) in a specific
application would compromise the finished-product characteristics that
consumers demand. As a result, there is very little substitutability
between hard and soft wheat flour.
2. Flour Customers and Flour Pricing
Wheat flour is purchased by four main types of customers:
industrial bakers, food service companies, flour distributors, and
retail flour sellers. Larger flour customers typically buy flour
pursuant to a formal request for proposal or a less formal bidding-type
process, wherein the customer seeks bids from multiple flour millers.
These customers frequently specify the characteristics of the flour
they seek to purchase (including protein content, which is an indicator
of gluten content). Smaller flour customers often purchase standard
types of flour at prices that are based on millers' daily or weekly
price sheets. Whether they buy flour based on a bidding-type process or
price sheets, customers frequently play millers against one another
during negotiations, using price quotes from one or more millers as
leverage to secure lower delivered flour prices from competing millers.
[[Page 30887]]
The price of delivered flour has five components: (i) the price of
wheat, usually based on an organized wheat market price (e.g., the
price of wheat sold on the Minneapolis Grain Exchange, Kansas City
Board of Trade, or Chicago Mercantile Exchange); (ii) the ``basis,''
which is the difference between the price of wheat on an organized
market and the local market price of wheat for the miller; (iii) the
``millfeed credit,'' which is based on the price at which the miller
can sell wheat middlings; (iv) transportation costs, that is, the cost
of delivering flour from the mill to the customer; and (v) the
``block'' (sometimes referred to as the ``margin''), which amounts to
the miller's fee for converting wheat into flour.
The first four components largely are determined by market forces
beyond the control of an individual miller, and they account for the
overwhelming majority of the cost of delivered flour. The block, on the
other hand, is a relatively small portion of the price of delivered
flour. Although millers competing with one another to supply a customer
may seek to minimize the cost of the other components to keep the
delivered price of flour low, the block is the primary term that
millers can control, and it is the primary term on which they compete.
3. Transportation Costs and Customers' Supply Options
Although transportation costs tend to be a relatively small portion
of the delivered price of flour, they frequently determine whether a
flour miller can supply a customer cost effectively. Transportation
costs increase as the distance flour must travel from a mill to a
customer increases. Therefore, a miller's ability to economically
supply a customer will depend in part on how far away its mills are
from the customer's delivery point, which usually is a flour-using
facility, such as a bakery, food processing plant, or distribution
center. Mills located close enough to customers to which they can cost
effectively deliver flour by truck typically are the lowest cost
competitors for those customers' business. The maximum distance flour
can economically travel via truck typically is 150 to 200 miles.
Although some customers are capable of receiving flour delivery
from distant mills by rail or ``rail-to-truck transfer'' (which entails
shipping flour by rail, then transferring it to truck for delivery),
neither is a viable option for many customers. Customers not located on
a rail spur cannot physically receive direct rail shipments. Even for
customers with rail access, rail shipments from distant mills are
typically more expensive, slower, and less reliable than direct truck
shipments from local mills. Many customers also find that shipments by
rail-to-truck transfer have all the disadvantages of rail, plus the
risk that using two modes of transportation (and the need to transfer
flour from rail to truck) will degrade the quality of the delivered
flour. Thus, competition for flour sales to a customer takes place
primarily among millers located no more than 150 to 200 miles from a
customer.
C. The Relevant Product Markets
The Complaint alleges that hard wheat flour and soft wheat flour
are relevant product markets and lines of commerce.
Due to hard wheat flour's unique characteristics, flour consumers
use it for specific applications and cannot use other types of flour
for those applications. For example, a baker that produces crusty,
chewy baked goods, such as bread, rolls, bagels, pizza dough, or
similar products, cannot use soft wheat flour in place of hard wheat
flour to produce those goods because the finished goods will not
``rise'' or have the texture that baked-goods consumers expect and
demand. Consequently, hard wheat flour customers generally do not
regard other types of flour as adequate substitutes for hard wheat
flour. Thus, hard wheat flour is a relevant product market.
Due to soft wheat flour's unique characteristics, flour consumers
also use soft wheat flour for specific applications and cannot use
other types of flour for those applications. For example, a baker that
produces lighter, flakier products, such as cakes, cookies, crackers,
or pastries, cannot use hard wheat flour in place of soft wheat flour
to produce those goods because the finished goods will not remain
flat--as is desirable for crackers or pastries--or have the texture
that that baked-goods consumers expect and demand. Consequently, soft
wheat flour customers generally do not regard other types of flour as
adequate substitutes for soft wheat flour. Thus, soft wheat flour is a
relevant product market.
D. Relevant Geographic Markets
The Complaint alleges that the relevant geographic markets are
Northern California, Southern California, Northern Texas, and the Upper
Midwest. These markets are defined based on metropolitan statistical
areas (``MSAs'') as follows:
Northern California encompasses the Santa Rosa-Petaluma,
Napa, Sacramento-Arden-Arcade-Roseville, Stockton, Vallejo-Fairfield,
San Francisco-Oakland-Fremont, Santa Cruz-Watsonville, San Jose-
Sunnyvale-Santa Clara, Merced, and Modesto MSAs;
Southern California encompasses the Los Angeles-Long
Beach-Santa Ana, Riverside-San Bernardino-Ontario, and San Diego-
Carlsbad-San Marcos MSAs;
Northern Texas encompasses the Dallas-Fort Worth-Arlington
MSA; and the
Upper Midwest encompasses the Minneapolis-St. Paul-
Bloomington, Eau Claire, Madison, La Crosse, and Rochester MSAs.
The relevant geographic markets in this case are best defined by
the locations of customers. Flour millers take into account rivals'
mills that can economically supply a customer when determining the
price at which to sell to that customer. Because transportation costs
are an important component of the delivered price of flour, local mills
tend to be more cost-effective sources of supply than mills located
further away from the customer. When a customer has few local mills
capable of supplying it with the flour it needs at a relatively low
cost, a miller will charge a higher price to the customer. On the other
hand, when a customer has many nearby mills capable of supplying it, a
miller will charge a lower price. Thus, flour millers price differently
to different customers depending on their location.
Most flour customers are unable to defeat such pricing by
arbitrage. That is, they cannot secure flour at a lower price from
customers in other areas. Customers' ability to arbitrage is limited by
transportation costs, which limit the distance that flour can be
shipped cost effectively. In addition, securing flour from other
customers increases the number of times that flour changes hands, and
potentially increases the number of transportation modes used, which
increases food safety and quality risks, making arbitrage by buying
flour from customers in other areas undesirable.
Because of differential pricing and the inability of most wheat
flour customers to arbitrage, a hypothetical monopolist controlling the
sale of all hard wheat flour to customers in Northern California,
Southern California, Northern Texas, or the Upper Midwest, or the sale
of all soft wheat flour to customers in Southern California or Northern
Texas, would profitably impose a small but significant and
nontransitory increase in the price (``SSNIP'') of each relevant
product. It is appropriate to aggregate flour customers in each of
these areas because each customer in the area faces similar
[[Page 30888]]
supply options and, hence, would similarly be affected by the formation
of Ardent Mills.
E. Relevant SSNIP
The Division applies the hypothetical monopolist test to help
define relevant markets. This test asks whether a hypothetical
monopolist of a product, or of a product in an area, would profitably
impose a SSNIP. When applying the hypothetical monopolist test, the
Division typically bases the SSNIP on the price of the final product to
a consumer. In this case, however, the Division based the SSNIP
primarily on the ``block,'' which is the primary component of the
delivered price of flour that is determined by competition among
millers.
The use of a smaller SSNIP in this case is consistent with the
Horizontal Merger Guidelines, which state that ``[w]here explicit or
implicit prices for . . . firms' specific contribution to value can be
identified with reasonable clarity,'' those prices (instead of the
total price paid by customers) may be the relevant benchmark for
analyzing whether a hypothetical monopolist would profitably impose a
SSNIP.\3\ This method of analysis better directs attention to what
``might result from a significant lessening of competition caused by''
the joint venture.\4\
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\3\ See U.S. Dep't of Justice and Federal Trade Commission,
Horizontal Merger Guidelines Sec. 4.1.2 (2010), available at http://www.justice.gov/atr/public/guidelines/hmg-2010 html.
\4\ Id.
---------------------------------------------------------------------------
Flour millers' specific contribution to value largely involves the
conversion of wheat into flour, for which the block is the primary form
of compensation. Moreover, competition among wheat flour millers
largely is centered on the block, whether explicitly (for customers who
seek to identify each of the five components of delivered price) or
implicitly (for customers who pay a flat delivered price). Thus, the
lessening of competition resulting from the formation of Ardent Mills
largely would result in an increase in the block, which in turn would
increase the delivered price of flour to customers. As a result, basing
the SSNIP primarily on the block, rather than the delivered price of
flour, is appropriate in this case.
F. Competitive Effects of the Proposed Joint Venture
The Complaint alleges that the formation of Ardent Mills would
eliminate head-to-head competition between ConAgra Mills and Horizon
for sales to individual customers, increase the likelihood of capacity
closures, and increase the likelihood of anticompetitive coordination
among wheat flour millers.
1. Market Shares and Concentration
The Complaint alleges that the formation of Ardent Mills would
increase concentration in each relevant market. Market concentration
levels often indicate the likely competitive effects of a transaction--
the higher the concentration, and the more the proposed transaction
would increase concentration, the greater the likelihood that the
transaction would reduce competition. The Complaint alleges that each
relevant market is already concentrated, and that the joint venture
would significantly increase concentration in each market, indicating
that the joint venture likely would substantially lessen competition in
the relevant markets.
Due to transportation costs--which increase as shipping distances
increase--most competition in the relevant markets occurs among millers
with flour mills that are close to customers in the relevant geographic
markets. In particular, mills located close enough to customers to
allow for economical direct truck shipments of flour (i.e., no more
than 150 to 200 miles from customers) typically are the most effective
competitors for those customers' business. Although some millers
located more than 200 miles from a customer may sell flour into a
geographic market, higher transportation costs typically render distant
millers less competitive.
Detailed information on the sales and costs of each miller selling
into a geographic market would permit one to compute sales shares for
each relevant market. Absent that information, market shares and
concentration levels based on milling capacity within 200 miles of key
cities within each market serve to illuminate the likely competitive
effects of the joint venture. Each such 200-mile area includes the
flour millers who typically can serve customers at the lowest cost, and
competition will most directly be affected by a loss of competition
among those millers.
The market shares and concentration levels identified in the
Complaint indicate that the formation of Ardent Mills would give it a
large share of capacity--as well as a large share of sales--
presumptively enhancing market power in each relevant market.
Transactions are presumed likely to enhance market power where they
would raise a measure of market concentration called the Herfindahl-
Hirschman Index (``HHI'') \5\ more than 200 points to a total of more
than 2500 points. In each relevant market, the formation of Ardent
Mills would do so:
---------------------------------------------------------------------------
\5\ See U.S. Dep't of Justice and Federal Trade Commission,
Horizontal Merger Guidelines Sec. 5.3 (2010), available at http://www.justice.gov/atr/public/guidelines/hmg-2010 html. The HHI is
calculated by squaring the market share of each firm competing in
the market and then summing the resulting numbers. For example, for
a market consisting of four firms with shares of 30, 30, 20, and 20
percent, the HHI is 2,600 (302 + 302 + 202 + 202 = 2,600). The HHI
takes into account the relative size distribution of the firms in a
market. It approaches zero when a market is occupied by a large
number of firms of relatively equal size and reaches its maximum of
10,000 points when a market is controlled by a single firm. The HHI
increases both as the number of firms in the market decreases and as
the disparity in size between those firms increases.
---------------------------------------------------------------------------
Northern California. Ardent Mills would own two mills in
this area comprising approximately 70 percent of the hard wheat flour
capacity within 200 miles of San Francisco. The joint venture would
increase the HHI for hard wheat flour in this market to more than
5,000.
Southern California. Ardent Mills would own three mills in
this area comprising more than 40 percent of hard wheat flour milling
capacity within 200 miles of Los Angeles; the joint venture would
increase the HHI for hard wheat flour in this market to more than
2,500. Ardent Mills would also own two mills comprising more than 70
percent of soft wheat flour milling capacity; the joint venture would
increase the HHI for soft wheat flour in this market to more than
5,500.
Northern Texas. Ardent Mills would own three mills in this
area comprising more than 75 percent of hard wheat flour milling
capacity within 200 miles of Dallas-Ft. Worth. The joint venture would
increase the HHI for hard wheat flour to more than 6,000. Ardent Mills
would also own two mills comprising all soft wheat flour milling
capacity, increasing the HHI for soft wheat flour to 10,000.
Upper Midwest. Ardent Mills would control six mills in
this area comprising more than 60 percent of the hard wheat flour
milling capacity within 200 miles of Minneapolis. The joint venture
would increase the HHI for hard wheat flour in this market to more than
4,500.
2. Elimination of Head-to-Head Competition
The Complaint alleges that the formation of the joint venture
likely would substantially lessen competition in the relevant markets
by eliminating head-to-head competition between ConAgra Mills and
Horizon. Horizon
[[Page 30889]]
and ConAgra Mills operate mills that are close to one another in the
relevant geographic markets, and that are among those closest to many
customers in those markets. Because their mills are the closest mills
to many customers, Horizon's and ConAgra's delivered flour costs tend
to be lower than those of their rivals' more distant mills. Moreover,
because their mills are located close to one another, Horizon's and
ConAgra's flour transportation costs tend to be similar.
As a result of the proximity of their mills to one another--and to
one another's customers--Horizon and ConAgra frequently are among the
lowest-cost flour suppliers in the relevant markets, and they compete
aggressively against one another to make sales in those markets by
offering a lower delivered price to their customers. Indeed, wheat
flour customers in the relevant markets have obtained lower flour
prices--largely by securing a smaller block--by playing ConAgra Mills
and Horizon against one another during negotiations. The formation of
Ardent Mills would eliminate that competition, resulting in higher hard
wheat flour prices for customers in Northern California, Southern
California, Northern Texas, and the Upper Midwest, and higher soft
wheat flour prices for customers in Southern California and Northern
Texas.
3. Increased Likelihood of Capacity Closures
The Complaint alleges that the formation of Ardent Mills likely
would substantially lessen competition in the relevant markets by
increasing the likelihood of unilateral, anticompetitive capacity
closures.
A miller will find it profitable to unilaterally close capacity if
any lost profit due to lower sales would be more than offset by a
corresponding increase in profit on sales made at a higher price due to
the capacity closure. A wheat flour miller with a relatively large base
of milling capacity that can benefit from a price increase has a
greater incentive to shut capacity, forcing higher cost capacity to
step in and increase flour production to meet demand. The joint venture
would significantly increase Ardent Mills's base of capacity relative
to that of ConAgra Mills or Horizon standing alone, giving Ardent Mills
a greater incentive to unilaterally close capacity than either ConAgra
Mills or Horizon would have had.
Ardent Mills also would have a greater ability to unilaterally
close capacity than either ConAgra Mills or Horizon. Relatively high-
cost mills make an attractive target for capacity closures. All else
equal, higher-cost capacity yields lower profits. Closing high-cost
capacity is more attractive than closing low-cost capacity because
profits lost due to closing high-cost capacity are smaller. Because the
joint venture would give Ardent Mills a broader array of capacity from
which to choose capacity to close--including relatively high-cost
capacity--it would increase the ability of the joint venture to
profitably shut down capacity. When combined with the increased
incentive to close capacity, this increased ability increases the
likelihood that Ardent Mills will close capacity, with the result that
Ardent Mills and its remaining rivals will compete less aggressively
for the business of flour customers, ultimately increasing prices in
the relevant markets.
4. Increased Likelihood of Anticompetitive Coordination
The Complaint alleges that the formation of Ardent Mills likely
would substantially lessen competition in the relevant markets by
increasing the likelihood of anticompetitive coordination among flour
millers. Such coordination occurs where competing firms reach implicit
or explicit agreements on output, capacity, price, quality, or other
aspects of competition. Such coordination also could occur as a result
of parallel accommodating conduct. As described in Section 7 of the
Merger Guidelines, ``[p]arallel accommodating conduct [involves]
situations in which each rival's response to competitive moves made by
others is individually rational, and not motivated by retaliation or
deterrence nor intended to sustain an agreed-upon market outcome, but
nevertheless emboldens price increases and weakens competitive
incentives to reduce prices or offer customers better terms.''
Several features of hard wheat flour and soft wheat flour markets
render them susceptible to coordination. In particular, the Complaint
alleges these markets are transparent; that soft and hard wheat flour
are homogeneous and purchased frequently; that demand for soft and hard
wheat flour is inelastic; and that larger millers compete against one
another in multiple geographic markets. By eliminating a significant
independent competitor from each of the relevant markets, which already
are highly concentrated and are susceptible to anticompetitive
coordination, the joint venture would substantially increase the
likelihood of coordination among Ardent Mills and its few remaining
rivals.
The joint venture would further increase the likelihood of
anticompetitive coordination by permitting Cargill and CHS to share
certain wheat-related information with Ardent Mills. Under side
agreements to the Master Agreement forming Ardent Mills, Cargill and
CHS (both of which own grain trading businesses that would operate
independently of Ardent) are to be preferred suppliers to the joint
venture. These side agreements may permit Cargill and CHS to give
Ardent Mills information regarding wheat purchases and wheat uses by
the joint venture's rival millers. The exchange of such information
would make it easier for Ardent to monitor its rivals' behavior and
discipline deviations from coordinated strategies, substantially
increasing the likelihood of coordination in the relevant markets.
III. EXPLANATION OF THE PROPOSED FINAL JUDGMENT
A. Divestiture Requirement
The Proposed Final Judgment requires divestitures of individual
wheat flour mills that will eliminate the anticompetitive effects of
the formation of Ardent Mills by establishing a substantial,
independent and economically viable competitor in each relevant market.
The divestitures are to be made to Miller Milling Company, LLC
(``Miller Milling''). As explained in the Antitrust Division Policy
Guide to Merger Remedies, the Antitrust Division may require such
upfront buyers when a divested package is less than an existing
business entity.\6\ In this case, the mills to be divested are not
existing business entities; rather, the operation of each mill is
intertwined with the operation of Defendants' other wheat flour
mills.\7\ An upfront buyer is appropriate to ensure that the acquirer
will have all assets necessary to be an effective, long-term competitor
in the production and sale of flour. The United States can evaluate the
ability of a buyer to take the Divestiture Assets and operate them as
part of a complete flour milling company that can replace the
competition lost due to the proposed joint venture.
---------------------------------------------------------------------------
\6\ U.S. Department of Justice, Antitrust Division Policy Guide
to Merger Remedies (June 2011), available at http://www.justice.gov/atr/public/guidelines/272350.pdf (identifying an upfront buyer
provides greater assurance that the divestiture package contains the
assets needed to create a viable entity that will preserve
competition).
\7\ The purchase of wheat, sale of flour, and arrangement of
transportation of wheat and flour are examples of functions that are
centralized rather than based at the mill sites.
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The Proposed Final Judgment requires Defendants, within ten (10)
days after the Court signs the Hold Separate Stipulation and Order, to
divest to
[[Page 30890]]
Miller Milling four mills: ConAgra's mills located in New Prague,
Minnesota; Oakland, California; and Saginaw, Texas; and Horizon's mill
located in Los Angeles, California. In its sole discretion, the United
States may agree to one or more extensions of this period not to exceed
thirty (30) days in total. As the United States already has approved
the acquirer, any such extensions need not be as long as ordinarily is
the case when acquirers are not identified upfront. Defendants must
take all reasonable steps necessary to accomplish the divestiture
quickly and shall cooperate with prospective purchasers.
In the event that, through no action of the Defendants, the sale of
any of the Divestiture Assets cannot be completed, the Final Judgment
provides for the United States, in its sole discretion, to agree to the
sale of the unsold Divestiture Assets to an alternative purchaser
approved by the United States. If Defendants fail to sell the
Divestiture assets to Miller Milling or approved alternative purchasers
within the time permitted by the Final Judgment, the Final Judgment
provides that the Court will appoint a trustee selected by the United
States to effect the divestiture.
If a trustee is appointed, the Proposed Final Judgment provides
that Defendants will pay all costs and expenses of the trustee. The
trustee's commission will be structured so as to provide an incentive
for the trustee based on the price obtained and the speed with which
the divestiture is accomplished. After the trustee's appointment
becomes effective, the trustee will file monthly reports with the Court
and the United States setting forth his or her efforts to accomplish
the divestiture. At the end of six months, if the divestiture has not
been accomplished, the trustee and the United States will make
recommendations to the Court, which shall enter such orders as
appropriate, in order to carry out the purpose of the trust, including
extending the trust or the term of the trustee's appointment.
In addition, because experienced, knowledgeable personnel are
critical to success in the relevant markets--and may be even more
critical to a new entrant seeking to secure customers' business--the
Proposed Final Judgment provides the acquirer(s) with an expansive
right to hire relevant personnel without interference. The Proposed
Final Judgment gives the acquirer(s) the right to hire any and all of
Defendants' employees who are employed at, purchase or advise on the
purchase of wheat or wheat futures for, provide instructions, guidance,
or assistance relating to food safety or quality assurance for, or sell
or arrange for transportation of wheat flour or any wheat flour
byproducts from the assets to be divested. The Proposed Final Judgment
contains numerous provisions to facilitate the hiring and retention of
these employees. These provisions require Defendants to provide
detailed information about each relevant employee, to grant reasonable
access to relevant employees and the ability to interview them, and to
refrain from interfering with negotiations to hire any relevant
employee.
B. Nondisclosure of Wheat Customer Confidential Information Requirement
The Proposed Final Judgment prohibits Cargill, CHS, and ConAgra
from disclosing to Ardent Mills any non-public, customer-specific
information relating to wheat sales or usage, and it prohibits Ardent
Mills from soliciting or receiving such information from Cargill, CHS,
or ConAgra, or from using such information. No later than seven (7)
calendar days after the Final Judgment is entered by the Court, the
Proposed Final Judgment requires Defendants to distribute a copy of the
Final Judgment to each of their employees with responsibility for wheat
sales or flour sales. The Proposed Final Judgment requires Defendants
to distribute a copy of the Final Judgment and this Competitive Impact
Statement to each of their employees with responsibility for wheat
sales or flour sales, as well as to any person who succeeds to a
position with responsibility for wheat sales or flour sales within
thirty (30) calendar days of that succession. These documents also are
to be distributed annually to such employees.
IV. REMEDIES AVAILABLE TO POTENTIAL PRIVATE LITIGANTS
Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the Proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
Sec. 16(a), the Proposed Final Judgment has no prima facie effect in
any subsequent private lawsuit that may be brought against Defendants.
V. PROCEDURES AVAILABLE FOR MODIFICATION OF THE PROPOSED FINAL JUDGMENT
The United States and Defendants have stipulated that the Proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the Proposed Final Judgment is in the public
interest. The APPA provides a period of at least sixty (60) days
preceding the effective date of the Proposed Final Judgment within
which any person may submit to the United States written comments
regarding the Proposed Final Judgment. Any person who wishes to comment
should do so within sixty (60) days of the date of publication of this
Competitive Impact Statement in the Federal Register, or the last date
of publication in a newspaper of the summary of this Competitive Impact
Statement, whichever is later. All comments received during this period
will be considered by the U.S. Department of Justice, which remains
free to withdraw its consent to the Proposed Final Judgment at any time
prior to the Court's entry of judgment. The comments and the response
of the United States will be filed with the Court. In addition,
comments will be posted on the U.S. Department of Justice, Antitrust
Division's internet Web site and, under certain circumstances,
published in the Federal Register.
Written comments should be submitted to: Maribeth Petrizzi, Chief,
Litigation II Section, Antitrust Division, United States Department of
Justice, 450 Fifth Street NW., Suite 8700, Washington, DC 20530.
The Proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. ALTERNATIVES TO THE PROPOSED FINAL JUDGMENT
The United States considered, as an alternative to the Proposed
Final Judgment, a full trial on the merits against Defendants. The
United States could have continued the litigation and sought
preliminary and permanent injunctions against Defendants' formation of
Ardent Mills. The United States is satisfied, however, that the
divestiture of assets requirement and the nondisclosure of wheat
customer confidential information requirement
[[Page 30891]]
described in the Proposed Final Judgment will preserve competition for
the provision of hard wheat flour to customers in Northern California,
Southern California, Northern Texas, and the Upper Midwest, and for the
provision of soft wheat flour to customers in Southern California and
Northern Texas, the relevant markets identified by the United States.
Thus, the Proposed Final Judgment would achieve all or substantially
all of the relief the United States would have obtained through
litigation, but avoids the time, expense, and uncertainty of a full
trial on the merits of the Complaint.
VII. STANDARD OF REVIEW UNDER THE APPA FOR THE PROPOSED FINAL JUDGMENT
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a sixty-day comment period, after which the court shall
determine whether entry of the Proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. Sec. 16(e)(1). In making that
determination, the court, in accordance with the statute as amended in
2004, is required to consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint 7 including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. Sec. 16(e)(1)(A) & (B). In considering these statutory
factors, the court's inquiry is necessarily a limited one, as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.'' United States v.
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see generally
United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007)
(assessing the public interest standard under the Tunney Act); United
States v. InBev N.V./S.A., 2009-2 Trade Cas. (CCH) ] 76,736, 2009 U.S.
Dist. LEXIS 84787, No. 08-1965 (JR), at *3, (D.D.C. Aug. 11, 2009)
(noting that the court's review of a consent judgment is limited and
only inquires ``into whether the government's determination that the
proposed remedies will cure the antitrust violations alleged in the
complaint was reasonable, and whether the mechanism to enforce the
final judgment are clear and manageable'').\8\
---------------------------------------------------------------------------
\8\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
Sec. 16(e) (2004), with 15 U.S.C. Sec. 16(e)(1) (2006); see also
SBC Commc'ns, 489 F. Supp. 2d at 11 (concluding that the 2004
amendments ``effected minimal changes'' to Tunney Act review).
---------------------------------------------------------------------------
As the United States Court of Appeals for the District of Columbia
Circuit has held, under the APPA a court considers, among other things,
the relationship between the remedy secured and the specific
allegations set forth in the government's complaint, whether the decree
is sufficiently clear, whether enforcement mechanisms are sufficient,
and whether the decree may positively harm third parties. See
Microsoft, 56 F.3d at 1458-62. With respect to the adequacy of the
relief secured by the decree, a court may not ``engage in an
unrestricted evaluation of what relief would best serve the public.''
United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see
also Microsoft, 56 F.3d at 1460-62; United States v. Alcoa, Inc., 152
F. Supp. 2d 37, 40 (D.D.C. 2001); InBev, 2009 U.S. Dist. LEXIS 84787,
at *3. Courts have held that:
[t]he balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\9\ In
determining whether a proposed settlement is in the public interest, a
district court ``must accord deference to the government's predictions
about the efficacy of its remedies, and may not require that the
remedies perfectly match the alleged violations.'' SBC Commc'ns, 489 F.
Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461 (noting the need
for courts to be ``deferential to the government's predictions as to
the effect of the proposed remedies''); United States v. Archer-
Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that
the court should grant due respect to the United States' prediction as
to the effect of proposed remedies, its perception of the market
structure, and its views of the nature of the case).
---------------------------------------------------------------------------
\9\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''). See generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest' '').
---------------------------------------------------------------------------
Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[A] proposed decree must be approved
even if it falls short of the remedy the court would impose on its own,
as long as it falls within the range of acceptability or is `within the
reaches of public interest.' '' United States v. Am. Tel. & Tel. Co.,
552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd
sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also
United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky.
1985) (approving the consent decree even though the court would have
imposed a greater remedy). To meet this standard, the United States
``need only provide a factual basis for concluding that the settlements
are reasonably adequate remedies for the alleged harms.'' SBC Commc'ns,
489 F. Supp. 2d at 17.
Moreover, the court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Complaint, and the APPA does not authorize the court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459; see also InBev, 2009
U.S. Dist. LEXIS 84787, at *20 (``[T]he `public interest' is not to be
measured by comparing the violations alleged in the complaint against
those the court believes could have, or even should have, been
alleged.''). Because the ``court's authority to review the decree
depends entirely on the government's exercising its prosecutorial
discretion by bringing a case in the first place,'' it follows that
``the court is only authorized to review the decree itself,'' and not
to ``effectively redraft the complaint'' to inquire into other matters
that the United States did not pursue. Microsoft, 56 F.3d at 1459-60.
As this Court recently confirmed in
[[Page 30892]]
SBC Communications, courts ``cannot look beyond the complaint in making
the public interest determination unless the complaint is drafted so
narrowly as to make a mockery of judicial power.'' SBC Commc'ns, 489 F.
Supp. 2d at 15.
In its 2004 amendments, Congress made clear its intent to preserve
the practical benefits of utilizing consent decrees in antitrust
enforcement, adding the unambiguous instruction that ``[n]othing in
this section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to
intervene.'' 15 U.S.C. Sec. 16(e)(2). The language wrote into the
statute what Congress intended when it enacted the Tunney Act in 1974,
as Senator Tunney explained: ``The court is nowhere compelled to go to
trial or to engage in extended proceedings which might have the effect
of vitiating the benefits of prompt and less costly settlement through
the consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement
of Senator Tunney). Rather, the procedure for the public interest
determination is left to the discretion of the court, with the
recognition that the court's ``scope of review remains sharply
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC
Commc'ns, 489 F. Supp. 2d at 11.\10\
---------------------------------------------------------------------------
\10\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) ]
61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt
failure of the government to discharge its duty, the Court, in
making its public interest finding, should . . . carefully consider
the explanations of the government in the competitive impact
statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6
(1973) (``Where the public interest can be meaningfully evaluated
simply on the basis of briefs and oral arguments, that is the
approach that should be utilized.'').
---------------------------------------------------------------------------
VIII. DETERMINATIVE DOCUMENTS
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the Proposed Final Judgment.
Dated: May 20, 2014
Respectfully submitted,
-----------------------------------------------------------------------
JOHN M. NEWMAN
Attorney
Antitrust Division
MARK J. NIEFER*
(D.C. BAR 470370)
Attorney
Antitrust Division
U.S. Department of Justice
450 Fifth Street, NW., Suite 8000
Washington, DC 20530
Telephone: (202) 307-6318
Facsimile: (202) 616-2441
Email: [email protected]
*Attorney of Record
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
Plaintiff,
v.
CONAGRA FOODS, INC.,
HORIZON MILLING, LLC,
CARGILL INCORPORATED,
and
CHS INC.,
Defendants.
Case No.: 1:14-cv-00823
Judge: Hon. Ketanji Brown Jackson
Dated: May 20, 2014
PROPOSED FINAL JUDGMENT
WHEREAS, Plaintiff United States of America (``United States'')
filed its Complaint on May 20, 2014, the United States and Defendants,
by their respective attorneys, have consented to the entry of this
Final Judgment without trial or adjudication of any issue of fact or
law, and without this Final Judgment constituting any evidence against
or admission by any party regarding any issue of fact or law;
AND WHEREAS, Defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
AND WHEREAS, the essence of this Final Judgment is the prompt and
certain divestiture of certain rights or assets by Defendants to assure
that competition is not substantially lessened;
AND WHEREAS, the United States requires Defendants to make certain
divestitures for the purpose of remedying the loss of competition
alleged in the Complaint;
AND WHEREAS, Defendants have represented to the United States that
the divestitures required below can and will be made and that
Defendants will later raise no claim of mistake, hardship or difficulty
of compliance as grounds for asking the Court to modify any of the
provisions contained below;
NOW THEREFORE, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ORDERED, ADJUDGED, AND DECREED:
I. JURISDICTION
This Court has jurisdiction over the subject matter of and each of
the parties to this action. The Complaint states a claim upon which
relief may be granted against Defendants under Section 7 of the Clayton
Act, as amended (15 U.S.C. Sec. 18), and Section 1 of the Sherman Act,
15 U.S.C. Sec. 1.
II. DEFINITIONS
As used in this Final Judgment:
A. ``Acquirer'' means Miller Milling, or another entity or entities
to which Defendants divest the Los Angeles Mill, the New Prague Mill,
the Oakland Mill, and the Saginaw Mill.
B. ``Ardent Mills'' means the joint venture that will be formed by
the Transaction.
C. ``Cargill'' means Defendant Cargill Incorporated, a privately
held company that is incorporated in Delaware and headquartered in
Wayzata, Minnesota, its successors and assigns, and its subsidiaries,
divisions, groups, affiliates, partnerships and joint ventures,
including Ardent Mills, and their directors, officers, managers,
agents, and employees.
D. ``CHS'' means Defendant CHS Inc., a Minnesota corporation
headquartered in Inver Grove Heights, Minnesota, its successors and
assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships and joint ventures, including Ardent Mills, and their
directors, officers, managers, agents, and employees.
E. ``ConAgra'' means Defendant ConAgra Foods, Inc., a Delaware
corporation headquartered in Omaha, Nebraska, its successors and
assigns, and its subsidiaries, divisions, groups, affiliates,
partnerships and joint ventures, including Ardent Mills, and their
directors, officers, managers, agents, and employees.
F. ``Horizon'' means Defendant Horizon Milling, LLC, a joint
venture between Cargill and CHS headquartered in Wayzata, Minnesota,
its successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships and joint ventures, including Ardent Mills,
and their directors, officers, managers, agents, and employees.
G. ``Divestiture Assets'' means the assets listed in Schedule A.
H. ``Los Angeles Mill'' means Item 2 on Schedule A and the assets
associated with Item 2 that are listed in Item 3 on Schedule A.
I. ``New Prague Mill'' means Item 1(a) on Schedule A and the assets
associated with Item 1(a) that are listed in Item 3 on Schedule A.
J. ``Oakland Mill'' means Item 1(b) on Schedule A and the assets
associated with Item 1(b) that are listed in Item 3 on Schedule A.
[[Page 30893]]
K. ``Saginaw Mill'' means Item 1(c) on Schedule A and the assets
associated with Item 1(c) that are listed in Item 3 on Schedule A.
L. ``Miller Milling'' means Miller Milling Company, LLC, a
Minnesota limited liability company headquartered in Minneapolis,
Minnesota, its parent, its successors and assigns, and its
subsidiaries, divisions, groups, affiliates, partnerships and joint
ventures, and their directors, officers, managers, agents, and
employees.
M. ``Transaction'' means the proposed formation of the Ardent Mills
Joint Venture pursuant to the March 4, 2013 Master Agreement by and
among ConAgra, Cargill, CHS, and HM Luxembourg S.A.R.L., as amended.
N. ``Wheat Customer Confidential Information'' means any customer-
specific information not in the public domain that reflects:
1. wheat sales by Defendants to customers or potential customers
other than Ardent Mills, including, but not limited to, the type of
wheat purchased, origination or delivery point of purchased wheat, date
of purchase, purchase price or quantities, or mode or cost of delivery;
or
2. wheat use by such customers or potential customers (other than
Defendants in connection with their wheat use to manufacture products
for themselves or others), including, but not limited to, the types of
products produced using wheat as an input, and the price charged,
quantity produced, or capacity or cost to produce such products.
III. APPLICABILITY
A. This Final Judgment applies to Defendants and all other persons
in active concert or participation with any of them who receive actual
notice of this Final Judgment by personal service or otherwise.
B. If, prior to complying with Sections IV and V of this Final
Judgment, Defendants sell or otherwise dispose of all or substantially
all of their assets or of lesser business units that include the
Divestiture Assets, they shall require the purchaser to be bound by the
provisions of this Final Judgment. Defendants need not obtain such an
agreement from the Acquirer(s) of the assets divested pursuant to this
Final Judgment.
IV. DIVESTITURES
A. Defendants are ordered and directed, within ten (10) calendar
days after the Court signs the Hold Separate Stipulation and Order in
this matter, to divest the Los Angeles Mill, New Prague Mill, Oakland
Mill, and Saginaw Mill to Miller Milling in a manner consistent with
this Final Judgment. Defendants shall use their best efforts to
accomplish the divestitures ordered by this Final Judgment as
expeditiously as possible. The United States, in its sole discretion,
may agree to one or more extensions of this time period not to exceed
thirty (30) calendar days in total, and shall notify the Court of any
such extension. In the event that, through no action of Defendants, the
sale of any of the Divestiture Assets cannot be consummated, the United
States, in its sole discretion, may agree to the sale of the unsold
Divestiture Assets to an alternative Acquirer(s) approved by the United
States.
B. Defendants shall offer to furnish to Acquirer(s), subject to
customary confidentiality assurances, all information and documents
relating to the Divestiture Assets customarily provided in a due
diligence process, except such information or documents subject to the
attorney-client privilege or work-product doctrine. Defendants shall
make available such information to the United States at the same time
that such information is made available to the Acquirer(s).
C. Defendants shall permit the Acquirer(s) to have reasonable
access to personnel and to make inspections of the physical facilities
associated with the Divestiture Assets; access to any and all
environmental, zoning, and other permit documents and information; and
access to any and all financial, operational, or other documents and
information customarily provided as part of a due diligence process,
except such information or documents subject to the attorney client
privilege or the work-product doctrine.
D. Defendants shall warrant to the Acquirer(s) that each asset will
be operational on the date of sale.
E. Defendants shall not take any action that will impede in any way
the permitting, operation, or divestiture of the Divestiture Assets.
F. Defendants shall warrant to the Acquirer(s) that there are no
material defects in the environmental, zoning or other permits
pertaining to the operation of each asset, and that following the sale
of the Divestiture Assets, Defendants will not undertake, directly or
indirectly, any challenges to the environmental, zoning, or other
permits relating to the operation of the Divestiture Assets.
G. At the option of the Acquirer(s) of the Divestiture Assets,
Defendants shall enter into one or more transition services agreements.
These agreements may include, but not be limited to, services relating
to the packaging of flour, the purchase of wheat or other ingredients,
the inbound transportation of wheat or other ingredients, the outbound
transportation of flour or millfeed, or the milling of flour.
1. The terms and conditions of any contractual arrangement meant to
satisfy this provision must be reasonably related to market conditions.
The duration of any transition services agreement shall not be longer
than six (6) months from the date of divestiture. The United States, in
its sole discretion, may approve an extension of the term of any
transition services agreement for a period of up to six (6) months. If
the Acquirer(s) seeks an extension of the term of any transition
services agreement, it shall so notify the United States in writing at
least two (2) months prior to the date the transition services
agreement expires. The United States shall respond to any such request
for extension in writing at least one (1) month prior to the date the
transition services agreement expires.
2. If in conjunction with a transition services agreement pursuant
to Subparagraph (1) above, Defendants temporarily assign any employee
to the Acquirer(s) to fill a position at a mill to be divested, such
employee (a) shall not be assigned to Acquirer(s) longer than six (6)
months from the date of divestiture of the Divestiture Assets; (b)
shall be located at the mill; (c) shall not, during the temporary
assignment, reveal to the Acquirer(s), or make use of, any non-public
information concerning Defendants; (d) shall not, during or subsequent
to the temporary assignment, reveal to Defendants or anyone else any
non-public information concerning Acquirer(s); (e) shall not,
subsequent to the temporary assignment, make use of any non-public
information concerning Acquirer(s); and (f) shall not retain or convey
to others any documents, data, or tangible things concerning the
Acquirer(s) obtained during the temporary assignment. Any temporary
employee assignment pursuant to this subparagraph IV(G)(2) cannot be
extended beyond six (6) months, even if the United States, in its sole
discretion, approves an extension of the related transition services
agreement.
3. Defendants shall distribute a copy of this Final Judgment and
related Competitive Impact Statement to any employees who perform
services for the Acquirer(s) pursuant to Paragraph IV(G)(2).
H. Unless the United States otherwise consents in writing, the
divestiture by Defendants pursuant to Section IV, or by the trustee
appointed pursuant to Section V, of this Final Judgment, shall include
the entire Divestiture Assets,
[[Page 30894]]
and shall be accomplished in such a way as to satisfy the United
States, in its sole discretion, that the Divestiture Assets can and
will be used by the Acquirer(s) as part of a viable ongoing business
producing and selling wheat flour. Divestiture of the Divestiture
Assets may be made to one or more Acquirers, provided that in each
instance it is demonstrated to the sole satisfaction of the United
States that the Divestiture Assets will remain viable and the
divestiture of such assets will remedy the competitive harm alleged in
the Complaint. The divestitures, whether pursuant to Section IV or
Section V of this Final Judgment:
1. shall be made to an Acquirer(s) that, in the United States's
sole judgment, has the intent and capability (including the necessary
managerial, operational, technical and financial capability) of
competing effectively as a producer and seller of wheat flour; and
2. shall be accomplished so as to satisfy the United States, in its
sole discretion, that none of the terms of any agreement between the
Acquirer(s) and Defendants gives Defendants the ability unreasonably to
raise the Acquirer's costs, to lower the Acquirer's efficiency, or
otherwise to interfere in the ability of the Acquirer or Acquirers to
compete effectively.
V. APPOINTMENT OF TRUSTEE
A. If Defendants have not divested all of the Divestiture Assets
within the time period specified in Paragraph IV(A), Defendants shall
notify the United States of that fact in writing. Upon application of
the United States, the Court shall appoint a trustee selected by the
United States and approved by the Court to effect the divestiture of
any of the Divestiture Assets not yet divested.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Divestiture Assets. The
trustee shall have the power and authority to accomplish the
divestiture to an Acquirer(s) acceptable to the United States at such
price and on such terms as are then obtainable upon reasonable effort
by the trustee, subject to the provisions of Sections IV, V, and VI of
this Final Judgment, and shall have such other powers as this Court
deems appropriate. Subject to Paragraph V(D) of this Final Judgment,
the trustee may hire at the cost and expense of Defendants any
investment bankers, attorneys, or other agents, who shall be solely
accountable to the trustee, reasonably necessary in the trustee's
judgment to assist in the divestiture.
C. Defendants shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance. Any such objections by
Defendants must be conveyed in writing to the United States and the
trustee no later than ten (10) calendar days after the trustee has
provided the notice required under Section VI.
D. The trustee shall serve at the cost and expense of Defendants,
on such terms and conditions as the United States approves, including
confidentiality requirements and conflict of interest certifications.
The trustee shall account for all monies derived from the sale of the
assets sold by the trustee and all costs and expenses so incurred.
After approval by the Court of the trustee's accounting, including fees
for its services yet unpaid and those of any professionals and agents
retained by the trustee, all remaining money shall be paid to
Defendants and the trust shall be terminated. The compensation of the
trustee and any professionals and agents retained by the trustee shall
be reasonable in light of the value of the Divestiture Assets and based
on a fee arrangement providing the trustee with an incentive based on
the price and terms of the divestiture and the speed with which it is
accomplished, but timeliness is paramount. If the trustee and
Defendants are unable to reach agreement on the trustee's compensation
or other terms and conditions of sale within fourteen (14) calendar
days of appointment of the trustee, the United States may, in its sole
discretion, take appropriate action, including making a recommendation
to the Court.
E. Defendants shall use their best efforts to assist the trustee in
accomplishing the required divestitures. The trustee and any
consultants, accountants, attorneys, and other agents retained by the
trustee shall have full and complete access to the personnel, books,
records, and facilities of the assets to be divested, and Defendants
shall develop financial and other information relevant to such business
as the trustee may reasonably request, subject to reasonable protection
for trade secret or other confidential research, development, or
commercial information, except such information or documents subject to
the attorney client privilege or work-product doctrine. Defendants
shall take no action to interfere with or to impede the trustee's
accomplishment of the divestitures.
F. After its appointment, the trustee shall file monthly reports
with the United States and, as appropriate, the Court, setting forth
the trustee's efforts to accomplish the divestitures ordered under this
Final Judgment. To the extent such reports contain information that the
trustee deems confidential, such reports shall not be filed in the
public docket of the Court. Such reports shall include the name,
address, and telephone number of each person who, during the preceding
month, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any interest in the Divestiture Assets, and
shall describe in detail each contact with any such person. The trustee
shall maintain full records of all efforts made to divest the
Divestiture Assets.
G. If the trustee has not accomplished the divestitures ordered
under this Final Judgment within six (6) months after the trustee's
appointment, the trustee shall promptly file with the Court a report
setting forth: (1) the trustee's efforts to accomplish the required
divestitures; (2) the reasons, in the trustee's judgment, why the
required divestitures have not been accomplished; and (3) the trustee's
recommendations. To the extent such report contains information that
the trustee deems confidential, such report shall not be filed in the
public docket of the Court. The trustee shall at the same time furnish
such report to the United States, which shall have the right to make
additional recommendations consistent with the purpose of the trust.
The Court thereafter shall enter such orders as it shall deem
appropriate to carry out the purpose of the Final Judgment, which may,
if necessary, include extending the trust and the term of the trustee's
appointment by a period requested by the United States.
H. If the United States determines that the trustee has ceased to
act or failed to act diligently or in a reasonably cost-effective
manner, it may recommend the Court appoint a substitute trustee.
VI. NOTICE OF PROPOSED DIVESTITURE
A. If the trustee is responsible for effecting the divestitures
required herein, within two (2) business days following execution of a
definitive divestiture agreement, the trustee shall notify the United
States and Defendants of any proposed divestiture required by Section V
of this Final Judgment. The notice provided to the United States shall
set forth the details of the proposed divestiture and list the name,
address, and telephone number of each person not previously identified
who offered or expressed an interest in or desire to acquire any
ownership interest in the Divestiture Assets, together with full
details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States of such
[[Page 30895]]
notice, the United States may request from Defendants, the proposed
Acquirer(s), any other third party, or the trustee, if applicable,
additional information concerning the proposed divestiture, the
proposed Acquirer(s), and any other potential Acquirer. Defendants and
the trustee shall furnish any additional information requested, except
such information or documents subject to the attorney client privilege
or work-product doctrine within fifteen (15) calendar days of the
receipt of the request, unless the parties shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from Defendants, the
proposed Acquirer or Acquirers, any third party, and the trustee,
whichever is later, the United States shall provide written notice to
Defendants and the trustee, if there is one, stating whether or not it
objects to the proposed divestiture. If the United States provides
written notice that it does not object, the divestiture may be
consummated, subject only to Defendants' limited right to object to the
sale under Paragraph V(C) of this Final Judgment. Absent written notice
that the United States does not object to the proposed Acquirer(s) or
upon objection by the United States, a divestiture proposed under
Sections IV or V shall not be consummated. Upon objection by Defendants
under Paragraph V(C), a divestiture proposed under Section V shall not
be consummated unless approved by the Court.
VII. RIGHT TO HIRE
A. To enable the Acquirer(s) to make offers of employment,
Defendants shall provide the Acquirer(s) and the United States
information relating to the personnel who are employed at, purchase
wheat for, purchase or advise on the purchase of wheat futures for,
provide instructions, guidance, or assistance relating to food safety
or quality assurance for, or who sell or arrange transportation for
flour, millfeed or any other product produced at any of the mills
listed in 1(a)-(c) and 2 in Schedule A. The information provided by
Defendants shall include for each employee his or her name, job title,
responsibilities as of January 1, 2014, training and educational
history, relevant certifications, and, to the extent permissible by
law, job performance evaluations, and current salary and benefits
information.
B. Defendants shall make personnel available for interviews with
the Acquirer(s) during normal business hours at a mutually agreeable
location and will not interfere with any negotiations by the Acquirer
or Acquirers to employ any of the personnel employed at the facilities
listed in 1(a)-(c) and 2 in Schedule A. Interference with respect to
this paragraph includes, but is not limited to, enforcement of
noncompete and nondisclosure agreements and offers to increase an
employee's salary or benefits other than as a part of a company-wide
increase in salary or benefits.
1. For each employee who elects employment by the Acquirer(s),
Defendants shall vest all unvested pension and other equity rights of
that employee and provide all benefits to which the employee would have
been entitled if terminated without cause, per the terms of the
applicable plan(s). Defendants also shall waive all noncompete and
nondisclosure agreements.
2. Nothing in this Section shall prohibit Defendants from
maintaining any reasonable restriction on the disclosure by an employee
who accepts an offer of employment with the Acquirer(s) of the
Defendants' proprietary, non-public information that is (1) not
otherwise required to be disclosed by this Final Judgment, (2) related
solely to Defendants' businesses and clients, and (3) unrelated to the
Divestiture Assets.
VIII. NONDISCLOSURE OF WHEAT CUSTOMER CONFIDENTIAL INFORMATION
A. Cargill, CHS, and ConAgra shall not disclose to Ardent Mills any
Wheat Customer Confidential Information.
B. Ardent Mills shall not solicit or receive from Cargill, CHS, or
ConAgra any Wheat Customer Confidential Information, or use any Wheat
Customer Confidential Information received from Cargill, CHS, or
ConAgra.
C. No later than seven (7) calendar days after the entry of this
Final Judgment, Defendants shall distribute a copy of this Final
Judgment and the Competitive Impact Statement to each of their
employees with responsibility for wheat sales or flour sales.
D. Defendants shall distribute a copy of this Final Judgment and
related Competitive Impact Statement to any person who succeeds to a
position described in Paragraph VIII(C) within thirty (30) days of that
succession.
E. Defendants shall annually furnish to each person designated in
Paragraphs VIII(C) and VIII(D) a description and summary of the meaning
and requirements of Section VIII of this Final Judgment.
F. Defendants shall report to the United States any violations of
Section VIII (A) or VIII(B) of this Final Judgment.
IX. FINANCING
Defendants shall not finance all or any part of any purchase made
pursuant to Section IV or V of this Final Judgment.
X. HOLD SEPARATE
Until the divestitures required by this Final Judgment have been
accomplished, Defendants shall take all steps necessary to comply with
the Hold Separate Stipulation and Order entered by this Court.
Defendants shall take no action that would jeopardize the divestitures
ordered by this Court.
XI. AFFIDAVITS
A. Within twenty (20) calendar days of the filing of the Complaint
in this matter, Defendants shall deliver to the United States an
affidavit that describes in reasonable detail all actions Defendants
have taken and all steps Defendants have implemented on an ongoing
basis to comply with Section X of this Final Judgment. Defendants shall
deliver to the United States an affidavit describing any changes to the
efforts and actions outlined in Defendants' earlier affidavits filed
pursuant to this Section within fifteen (15) calendar days after the
change is implemented.
B. Defendants shall keep all records of all efforts made to
preserve and divest the Divestiture Assets until one year after such
divestiture has been completed.
XII. COMPLIANCE INSPECTION
A. For the purposes of determining or securing compliance with this
Final Judgment, or of any related orders such as the Hold Separate
Stipulation and Order, or of determining whether the Final Judgment
should be modified or vacated, and subject to any legally recognized
privilege, from time to time authorized representatives of the United
States Department of Justice, including consultants and other persons
retained by the United States, shall, upon written request of an
authorized representative of the Assistant Attorney General in charge
of the Antitrust Division, and on reasonable notice to Defendants, be
permitted:
1. access during Defendants' office hours to inspect and copy, or
at the option of the United States, to require Defendants to provide
hard copy or electronic copies of, all books, ledgers, accounts,
records, data, and documents in the possession, custody, or control of
[[Page 30896]]
Defendants, relating to any matters contained in this Final Judgment;
and
2. to interview, either informally or on the record, Defendants'
officers, employees, or agents, who may have their individual counsel
present, regarding such matters. The interviews shall be subject to the
reasonable convenience of the interviewee and without restraint or
interference by Defendants.
B. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
Defendants shall submit written reports or responses to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this Section shall be divulged by the United States to any person other
than an authorized representative of the executive branch of the United
States, except in the course of legal proceedings to which the United
States is a party (including grand jury proceedings), for the purpose
of securing compliance with this Final Judgment, or as otherwise
required by law.
D. If, at the time information or documents are furnished by
Defendants to the United States, Defendants represent and identify in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(1)(G) of the
Federal Rules of Civil Procedure, and Defendants mark each pertinent
page of such material, ``Subject to claim of protection under Rule
26(c)(1)(G) of the Federal Rules of Civil Procedure,'' then the United
States shall give Defendants ten (10) calendar days notice prior to
divulging such material in any legal proceeding (other than a grand
jury proceeding).
XIII. NO REACQUISITION
Defendants may not reacquire any part of the Divestiture Assets
during the term of this Final Judgment, other than incidental purchases
of finished goods, raw materials, spare parts, or other equipment
offered by the Acquirer in the ordinary course of business.
XIV. RETENTION OF JURISDICTION
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XV. EXPIRATION OF FINAL JUDGMENT
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
XVI. PUBLIC INTEREST DETERMINATION
Entry of this Final Judgment is in the public interest. The parties
have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16, including making available to the
public copies of this Final Judgment, the Competitive Impact Statement,
and any comments thereon and the United States's responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and responses to comments filed with
the Court, entry of this Final Judgment is in the public interest.
Date:--------
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16
-----------------------------------------------------------------------
United States District Judge
SCHEDULE A
1. ConAgra's ownership and leasehold interest in each of the
following properties:
a. New Prague
i. The property at 100 2nd Avenue SW., New Prague, Minnesota 56071-
2314;
ii. 2.46 acres of real property at 302 Second Street Northwest, New
Prague, Minnesota pursuant to Lease Agreement, effective as of
September 1, 2012, by and between ConAgra Foods, Inc. and City of New
Prague, Minnesota;
iii. Lease of Property, dated June 1, 2001, by and between Union
Pacific Railroad Company and ConAgra Foods, Inc.;
iv. Track Lease Agreement, dated March 1, 1989, by and between
Union Pacific Railroad Company (as assignee of Chicago and North
Western Transportation Company) and ConAgra Flour Milling Company;
b. Oakland
i. The property at 2201 East \7th\ Street, Oakland, California
94606-5301;
ii. The property at 401 Kennedy Street, Oakland, California 94606;
iii. The agreement for Service from Track of Railroad, dated July
26, 1991, by and between Southern Pacific Transportation Company and
ConAgra, Inc.;
c. Saginaw
i. The property at 221 Fairmount Street, Saginaw, Texas 94606;
ii. The property at 221 South Fairmount Street, Saginaw, Texas
76179;
iii. The property at 220 South Fairmount Street, Saginaw, Texas
76179 (maintenance office that includes the machine shop and spare
parts);
2. Horizon's ownership and leasehold interest in each of the
following properties in Los Angeles, California:
a. Parcel 1 of Parcel Map NO 23131, in the City of Commerce, in the
County of Los Angeles, State of California, as per map filed in Book
276 Pages 33-36 inclusive of Parcel Maps, in the Office of the County
Recorder of said county;
i. Except therefrom all coal, oil, and other minerals, without the
right to use any surface thereof, in and under that portion of said
land lying within the lands described therein, as reserved by Las Vegas
Land and Water Company, in deed recorded August 16, 1944 as instrument
no. 15;
ii. Also excepting therefrom all minerals and minerals rights of
every kind and nature, including oil and gas rights, without the right
to enter upon the surface thereof, in and under that portion of said
land lying within the lands described therein, as reserved by Union
Pacific Railway Company, in deed recorded September 30, 1947 as
instrument no. 278;
b. A perpetual easement for ingress and egress as established and
more particularly described in that certain document entitled
``Reciprocal Easement Agreement for Driveway'' recorded May 23, 1980 as
instrument no. 80-511791, of official records;
c. The Industry Track Contract between Union Pacific Railroad
Company and Cargill, Incorporated, dated May 10, 2005;
d. The Sublease Agreement between Horizon Milling, LLC and Lowey
Enterprises d/b/a Sunrise Produce, dated August 16, 2004;
e. The License Agreement between Horizon Milling LLC and 5469
Ferguson Drive, LLC (``Licensor'') allowing Horizon Mill's employees to
park on a portion of Licensor's property.
3. For each property listed in 1(a)-(c) and 2 above and for the
mill on that property,
a. all tangible assets (leased or owned) used at or for the
operation or maintenance of the mill, including, but not limited to,
all real property and improvements; machinery; equipment; hardware;
fixtures (including production fixtures); computer hardware, other
tangible information technology assets; furniture; laboratories or
other assets used to test or evaluate wheat or flour; equipment or
buildings used for the storage, offloading, or
[[Page 30897]]
onloading of wheat, flour, or millfeed; supplies; materials; vehicles;
and spare parts in respect of any of the foregoing;
b. all improvements, fixed assets, and fixtures pertaining the mill
or any other facility on the real property described in 1 (a)-(c) or 2
above, and for any real property on which any facility is located that
is used in connection with the operation or maintenance of the mill, or
for any real property used for wheat that will be processed at the mill
or for flour, millfeed, or any other product produced at the mill;
c. all inventories, ingredients, raw materials, works-in-progress,
finished goods, supplies, stock, parts, packaging materials and other
accessories related thereto, including wheat or other ingredients that
are in transit to the mill or flour, millfeed, or other products
produced at the mill that is in transit to customers;
d. all real property and other legal rights possessed by Defendants
relating to the use, control or operation of the mill, for elevators,
storage, offloading or onloading or other facilities used for wheat to
be processed by the mill or for flour, millfeed, or any other product
produced at the mill, whether located on the same land as the mill or
not, including but not limited to, fee simple ownership rights,
easements and all other real property rights for land, improvements,
and fixtures; leasehold and rental rights for facilities that are
leased or rented, including all renewal or option rights; personal
property ownership rights for equipment and other personal property;
and contract rights with respect thereto;
e. all real property and other legal rights possessed by Defendants
and not described in 3(d) above, relating to the real property
described in 1(a)-(c) or 2 above, or any building thereon, including
but not limited to, fee simple ownership rights, easements and all
other real property rights for land, improvements, and fixtures;
leasehold and rental rights for facilities that are leased or rented,
including all renewal or option rights; personal property ownership
rights for equipment and other personal property; and contract rights
with respect thereto;
f. all assets not otherwise described in 3 (a)-(e) above that
relate to the transportation of wheat to the mill, or flour, millfeed,
or any other product from the mill, including, but not limited to,
leases or rights to use rail-to-truck transfer facilities, or leases or
ownership interests in rail spurs or rail lines;
g. all business records relating to operation of the mill located
on the property, to transportation of wheat, flour, millfeed, or any
other product produced at the mill, to the purchase of wheat, or to the
sale of flour, millfeed, or any other product produced at the mill, or
to any legal right in the real property described in 1 (a)-(c) or 2
above and any building affixed thereto, including, but not limited to,
maintenance records, financial records, accounting and credit records,
leases, correspondence, tax records, governmental licenses and permits,
bid or quote records, customer lists, customer communications, customer
contracts, supplier contracts, service agreements, operations records,
research and development records, testing records, non-employee
specific health, environment and safety records, equipment, repair and
performance records, training records, and all manuals and technical
information Defendants provide to their employees, customers,
suppliers, agents or licensees; and
4. All intangible assets that are used to operate the mill or any
facility located on the real property described in 1(a)-(c) or 2 above,
to operate, maintain, or repair any of the equipment in the mill or in
any facility located on the real property described in 1(a)-(c), or 2
above, including, but not limited to, contractual rights (to the extent
assignable) relating to energy, packaging, transportation, purchases of
wheat or other materials for processing at the mill, sales of flour,
millfeed or other products produced at the mill, including but not
limited to, open contracts or orders for the purchase of wheat that
have been assigned to the mill and open contracts or orders for the
sale of flour, millfeed or other products produced at the mill that
have been assigned to the mill; rights to use know-how, trade secrets,
patents, licenses, sublicenses and other intellectual property in
connection with the Divested Assets, and any assigned trademarks;
technical information; computer software and related documentation;
blueprints; specifications for materials; specifications provided by
customers for flour, millfeed or other products produced at the mill;
specifications for parts and devices; safety procedures; and quality
assurance and control procedures.
To the extent transference of any contract, lease or other rights
described above requires the consent of the other party, Defendants
shall use their best efforts to obtain that consent.
[FR Doc. 2014-12397 Filed 5-28-14; 8:45 am]
BILLING CODE 4410-11-P