[Federal Register Volume 63, Number 216 (Monday, November 9, 1998)]
[Notices]
[Pages 60347-60350]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-29846]
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FEDERAL TRADE COMMISSION
[File No. 9810254]
Koninklijke Ahold NV, et al.; Analysis to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint that accompanies the consent agreement and the terms of the
consent order--embodied in the consent agreement--that would settle
these allegations.
DATES: Comments must be received on or before January 8, 1999.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.
FOR FURTHER INFORMATION CONTACT: William Baer or James Fishkin, FTC/H-
374, Washington, D.C. 20580. (202) 326-2932 or 326-2663.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby
given that the above-captioned consent agreement containing a consent
order to cease and desist, having been filed with and accepted, subject
to final approval, by the Commission, has been placed on the public
record for a period of sixty (60) days. The following Analysis to Aid
Public Comment describes the terms of the consent agreement, and the
allegations in the complaint. An electronic copy of the
[[Page 60348]]
full text of the consent agreement package can be obtained from the FTC
Home Page (for October 20, 1998), on the World Wide Web, at ``http://
www.ftc.gov/os/actions97.htm.'' A paper copy can be obtained from the
FTC Public Reference Room, Room H-130, Sixth Street and Pennsylvania
Avenue, N.W., Washington, D.C. 20580, either in person or by calling
(202) 326-3627. Public comment is invited. Such comments or views will
be considered by the Commission and will be available for inspection
and copying at its principal office in accordance with Section
4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR
4.9(b)(6)(ii)).
Analysis of the Proposed Consent Order, Asset Maintenance
Agreement, and the Draft Complaint To Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted for
public comment from Koninklijke Ahold nv (``Ahold''), Giant Good Inc.
(``Giant''), and The 1244 Corporation (``1224'') (collectively ``the
proposed Respondents'') an Agreement Containing Consent Order (``the
proposed consent order'') and an Asset Maintenance Agreement. The
proposed Respondents have also reviewed a draft complaint contemplated
by the Commission. The proposed consent order is designed to remedy
likely anticompetitive effects arising from Ahold's proposed
acquisition of all of the Class AC voting stock of Giant from 1224 and
all of the Class A non-voting common stock of Giant for $43.50 per
share for cash. Respondent 1224 owns all of the Class AC voting stock
of Giant, which elects five of the nine directors of Giant.
II. Description of the Parties and the Proposed Acquisition
Ahold, headquartered in Zaandam, The Netherlands, is one of the
world's largest supermarket firms, operating approximately 3,000 stores
in Europe, North and South America, and Asia. In the United States,
Ahold is the seventh largest supermarket chain. Ahold has acquired nine
supermarket chains during the 1980s and 1990s: Top's, Stop & Shop, BI-
LO, Giant Food Stores, Edwards, Mel's Markets, Mayfair, Red Food, and
Finast. Ahold had $14.29 billion in U.S. revenues in the fiscal year
that ended on December 28, 1997. The acquisition of Giant would make
Ahold the fifth largest supermarket firm in the United States.
Today, Ahold operates Ahold USA, Inc., a wholly-owned subsidiary,
and, through various restructurings, four wholly-owned regional
supermarket firms: BI-LO, Inc., Top's Markets, Inc., Giant Food Stores,
Inc. (``Giant-Carlisle''), and The Stop & Shop Companies, Inc. Ahold's
supermarkets that directly compete against Giant's supermarkets are
part of the Giant-Carlisle division. The Giant-Carlisle division
operates supermarkets in Maryland under the ``Martin's'' trade name and
in Pennsylvania under the ``Giant'' trade name.
Giant, a Delaware corporation headquartered in Landover, Maryland,
is the fifteenth largest supermarket chain in the United States and one
of the nation's premier regional supermarket chains. Giant operates 179
supermarkets and three free-standing drug stores in Virginia, Maryland,
Delaware, New Jersey, Pennsylvania, and the District of Columbia. Giant
operates supermarkets under the ``Giant'' trade name in Maryland,
Virginia, and the District of Columbia, and supermarkets under the
``Super G'' trade name in Delaware, New Jersey, and Pennsylvania. Giant
had $4.23 billion in total sales for the fiscal year that ended on
February 28, 1998.
Ahold proposes to acquire all of the Class AC and Class AL voting
stock, and all of the outstanding Class A common stock of Giant, for
approximately $2.7 billion. 1224, formed in 1995 after the death of
Israel Cohen, the former Chairman and CEO of Giant, owns all of the
Class AC voting stock of Giant, which elects five of the nine board
seats. J Sainsbury, plc, a British firm that also owns the
Massachusetts-based Shaw's supermarket chain, owns the Class AL voting
shares, which elects four of the nine board seats. The Class A common
stock is publicly traded.
III. The Draft Complaint
The draft complaint alleges that the relevant line of commerce
(i.e., the product market) is the retail sale of food and grocery items
in supermarkets. Supermarkets provide a distinct set of products and
services for consumers who desire to one-stop shop for food and grocery
products. Supermarkets carry a full line and wide selection of both
food and nonfood products (typically more than 10,000 different stock-
keeping units (``SKUs'')), as well as a deep inventory of those SKUs.
In order to accommodate the large number of food and nonfood products
necessary for one-stop shopping, supermarkets are large stores that
typically have at least 10,000 square foot of selling space.
Supermarkets compete primarily with other supermarkets that provide
one-stop shopping for food and grocery products. Supermarkets primarily
base their food and grocery prices on the prices of food and grocery
products sold at nearby supermarkets. Supermarkets do not regularly
price-check food and grocery products sold at other types of stores,
and do not significantly change their food and grocery prices in
response to prices at other types of stores. Most consumers shopping
for food and grocery products at supermarkets are not likely to shop
elsewhere in response to a small price increase by supermarkets.
Retail stores other than supermarkets that sell food and grocery
products, such as neighborhood ``mom & pop'' grocery stores,
convenience stores, specialty food stores (e.g., seafood markets,
bakeries, etc.), club stores, military commissaries, and mass
merchants, do not effectively constrain prices at supermarkets. These
other stores operate significantly different retail formats. None of
these stores offers a supermarket's distinct set of products and
services that enable consumers to one-stop shop for food and grocery
products.
According to the draft compliant, the relevant sections of the
country (i.e., the geographic markets) in which to analyze the
acquisition are the areas in and near the following cities and towns:
(a) Bel Air, Maryland; (b) Eldersburg, Maryland; (c) Frederick,
Maryland; (d) Westminster, Maryland; (e) Hilltown, Pennsylvania; (f)
Norristown, Pennsylvania; (g) Warminster, Pennsylvania, and (h)
Yardley, Pennsylvania.
Ahold and Giant are actual and direct competitors in and near Bel
Air, Eldersburg, Frederick, Westminster, Norristown, Warminster, and
Yardley. Ahold is an actual potential competitor against Giant in and
near the Hilltown relevant market. But for the acquisition, Ahold and
Giant would become direct competitors in the Hilltown relevant market.
The acquisition will eliminate that competition.
According to the draft compliant, the Bel Air, Eldersburg,
Frederick, Westminster, Norristown, Warminster, and Yardley relevant
markets are highly concentrated, whether measured by the Herfindahl-
Hirshman Index (commonly referred to as ``HHI'') or by two-firm and
four-firm concentration ratios.\1\ The acquisition would substantially
increase concentration in each market. Ahold and Giant would have a
combined market share of near or greater than 35% in each geographic
market. The post-
[[Page 60349]]
acquisition HHIs in the geographic markets range from 3,008 to 6,716.
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\1\ The HHI is a measurement of market concentration calculated
by summing the squares of the individual market shares of all the
participants.
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The draft complaint further alleges that the Hilltown relevant
market is also highly concentrated. The market will remain highly
concentrated as a result of this acquisition, and will be significantly
more concentrated than it would have been but for the acquisition.
According to the draft complaint, entry is difficult and would not
be timely, likely, or sufficient to prevent anticompetitive effects in
the relevant geographic markets.
According to the draft compliant, Ahold's proposed acquisition of
the Class AC voting stock of Giant from 1224, and the Class A non-
voting common stock of Giant, if consummated, may substantially lessen
competition in the relevant markets in violation of Section 7 of the
Clayton Act, as amended, 15 U.S.C. Sec. 18, and Section 5 of the
Federal Trade Commission Act, as amended, 15 U.S.C. Sec. 45, by
eliminating direct competition between supermarkets owned or controlled
by Ahold and supermarkets owned or controlled by Giant, by eliminating
actual potential competition between supermarkets owned or controlled
by Ahold and supermarkets owned or controlled by Giant; by increasing
the likelihood that Ahold will unilaterally exercise market power; and
by increasing the likelihood of, or facilitating, collusion or
coordinated interaction among the remaining supermarkets firms. Each of
these effects increases the likelihood that the prices of food,
groceries or services will increase, and the quality and selection of
food, groceries or services will decrease, in the relevant sections of
the country.
IV. Terms of the Agreement Containing Consent Order (``the Proposed
Consent Order'')
The proposed consent order will remedy the Commission's competitive
concerns about the proposed acquisition. Under the terms of the
proposed consent order, the proposed Respondents must divest ten
specific supermarkets in the relevant markets. Four of the supermarkets
that the proposed Respondents must divest are currently owned and
operated by Ahold (all operating under the ``Martin's'' banner), and
six of the supermarkets are currently owned and operated by Giant (of
which one operates under the ``Giant'' banner and five operate under
the ``Super G'' banner). The proposed Respondents must divest: (1) the
Ahold ``Martin's'' in Bel Air, Maryland, to Fleming Companies, Inc.
(``Fleming''), the second largest supermarket wholesaler in the United
States and an operator of many company-owned supermarkets; (2) the two
Ahold ``Martin's'' supermarkets in Frederick, Maryland, to Frederick
County Foods LLC (``Frederick County Foods''), an independent operator
affiliated with Supervalu Inc. (``Supervalu''), (3) the Ahold
``Martin's'' supermarket in Westminster, Maryland, to Richfood
Holdings, Inc.'s (``Richfood'') Food-A-Rama division, a wholly-owned
subsidiary that operates Richfood's ``Metro'' supermarkets based in
Baltimore; (4) Giant's ``Giant'' supermarket in Eldersburg, Maryland,
to Safeway Inc. (``Safeway''), the second largest supermarket chain in
the United States and a major supermarket chain in Maryland; and (5)
five of Giant's ``Super G'' supermarkets in Pennsylvania to Supervalu,
the largest wholesaler to supermarkets and the thirteenth largest
retail operator of supermarkets in the United States. These
divestitures include every Ahold supermarket or every Giant supermarket
in each relevant market. Each upfront buyer owns no supermarkets in the
same market where it is acquiring one or more divested supermarkets
from the proposed Respondents. The specific supermarkets that the
proposed Respondents must divest to Fleming, Frederick County Foods,
Richfood, Safeway, and Supervalu are listed below.
The supermarket that the proposed Respondents must divest to
Fleming in accordance with the agreement between Ahold and Fleming
dated September 12, 1998, is the following:
1. Ahold store no. 114 operating under the ``Martin's Food Market''
trade name, located at 550 West McPhail Road, Bel Air, Maryland 21014
(Harford County).
The two supermarkets that the proposed Respondents must divest to
Frederick County Foods in accordance with the agreement between Ahold
and Frederick County Foods dated September 11, 1998, are the following:
1. Ahold store no. 40 operating under the ``Martin's Food Market''
trade name, located at 66 Waverly Drive in the Frederick Towne Mall
Shopping Center, Frederick, Maryland 21701 (Frederick County); and
2. Ahold store no. 96 operating under the ``Martin's Food Market''
trade name, located at 1305 West 7th Street in the Frederick Shopping
Center, Frederick, Maryland 21701 (Frederick County).
The supermarket that the proposed Respondents must divest to
Richfood in accordance with the agreement between Ahold and Richfood
dated September 14, 1998, is the following:
1. Ahold store no. 36 operating under the ``Martin's Food Market''
trade name, located at 551 Jermor Lane, Westminster, Maryland 21157
(Carroll County).
The supermarket that the proposed Respondents must divest to
Safeway in accordance with the agreement between Ahold and Safeway
dated September 12, 1998, is the following:
1. Giant store no. 238 operating under the ``Giant'' trade name,
located at 1313 Londontowne Boulevard in the Londontowne Square
Shopping Center, Eldersburg, Maryland 21784 (Carroll County).
The five supermarkets that the proposed Respondents must divest to
Supervalu in accordance with the agreement between Ahold and Supervalu
dated September 14, 1998, are the following:
1. Giant store no. 242 operating under the ``Super G'' trade name,
located at 1601 Big Oak Road in the Oxford Oaks Shopping Center, Lower
Makefield Township, Pennsylvania 19067 (Bucks County);
2. Giant store no. 249 operating under the ``Super G'' trade name,
located at 942 West Street Road in the Towne Square Shopping Center,
Warminster, Pennsylvania 18974 (Bucks County);
3. Giant store no. 237 operating under the ``Super G'' trade name,
located at 1591 Bethlehem Pike in the Hilltown Crossings Shopping
Center, Hilltown Township, Pennsylvania 19440 (Montgomery County);
4. Giant store no. 243 operating under the ``Super G'' trade name,
located at 2775 West Main Street in the Park-Ridge Shopping Center,
Lower Providence Township, Pennsylvania 19403 (Montgomery County); and
5. Giant store no. 250 operating under the ``Super G'' trade name,
located at 55 Germantown Pike in the Norriton Square Shopping Center,
East Norriton Township, Pennsylvania 19401 (Montgomery County).
The proposed consent order specifically requires that the
divestitures occur no later than twenty days after Ahold acquires the
Class AC voting stock from 1224 or four months after the proposed
Respondents signed the proposed consent order (September 18, 1998),
whichever is earlier.\2\ The proposed consent agreement also requires
Ahold to include rescission provisions in its upfront buyer agreements
that allow it to rescind the transaction(s) if the Commission, after
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the comment period, decides to reject any of the upfront buyers. If
Ahold divests the supermarkets to be divested prior to the date the
proposed consent order becomes final, and if, at the time the
Commission decides to make the proposed consent order final, the
Commission notifies Ahold that any of the upfront buyers is not an
acceptable acquirer or that any of the upfront buyer agreements is not
an acceptable manner of divestiture, then Ahold must immediately
rescind the transaction in question and divest those assets within
three months after the proposed consent order becomes final. At that
time, Ahold must divest those assets only to an acquirer that receives
the prior approval of the Commission and only in a manner that receives
the prior approval of the Commission. In the event that any Commission-
approved buyer is unable to take or keep possession of any of the
supermarkets identified for divestiture, a trustee that the Commission
may appoint has the power to divest any of the supermarkets or
properties in the markets alleged in Paragraph 16 of the complaint that
the proposed Respondents own to remedy the anticompetitive effects
alleged in the complaint.
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\2\ Acceptance of the proposed consent agreement for public
comment terminated the Hart-Scott-Rodino premerger waiting period
and enables Ahold to acquire the Giant stock immediately.
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The Commission's goal in evaluating possible purchasers of divested
assets is to maintain the competitive environment that existed prior to
the acquisition. When divestiture is an appropriate remedy for a
supermarket merger, the Commission requires the merging parties to find
a buyer for the divested stores. A proposed buyer must not itself
present competitive problems. For example, the Commission is less
likely to approve a buyer that already has a large retail presence in
the relevant geographic area than a buyer without such a presence. The
Commission is satisfied that the purchasers presented by the parties
are well qualified to run the divested stores and that divestiture to
these purchasers poses no separate competitive issues.
For a period of ten years from the date the proposed consent order
becomes final, the proposed Respondents are required to provide notice
to the Commission prior to acquiring supermarkets assets located in, or
any interest (such as stock) in any entity that owns or operates a
supermarket located in, Carroll, Frederick, or Harford counties in
Maryland, or Bucks or Montgomery counties in Pennsylvania. Respondents
may not complete such an acquisition until they have provided
information requested by the Commission. This provision does not
restrict the proposed Respondents from constructing new supermarket
facilities on their own; nor does it restrict the proposed Respondents
from leasing facilities not operated as supermarkets within the
previous six months.
For a period of ten years, the proposed consent order also
prohibits the proposed Respondents from entering into or enforcing any
agreement that restricts the ability of any person that acquires any
supermarket, any leasehold interest in any supermarket, or any interest
in any retail location used as a supermarket on or after January 1,
1998, to operate a supermarket at that site if such supermarket was
formerly owned or operated by the proposed Respondents in Carroll,
Frederick, or Harford counties in Maryland, or Bucks or Montgomery
counties in Pennsylvania. In addition, the proposed Respondents may not
remove fixtures or equipment from a store or property owned or leased
in Carroll, Frederick, or Harford counties in Maryland, or Bucks or
Montgomery counties in Pennsylvania, that is no longer in operation as
a supermarket, except (1) Prior to a sale, sublease, assignment, or
change in occupancy or (2) to relocate such fixtures or equipment in
the ordinary course of business to any other supermarket owned or
operated by Ahold.
The proposed Respondents are required to provide to the Commission
a report of compliance with the proposed consent order within thirty
days following the date on which they signed the proposed consent,
every thirty days thereafter until the divestitures are completed, and
annually for a period of ten years. The obligations of 1224 under the
proposed consent order will terminate upon consummation of the proposed
acquisition.
V. Terms of the Asset Maintenance Agreement
The proposed Respondents also entered into an Asset Maintenance
Agreement. Under the terms of the Asset Maintenance Agreement, from the
time Ahold acquires the Class AC voting stock of Giant from 1224 until
the divestitures have been completed, the proposed Respondents must
maintain the viability, competitiveness and marketability of the assets
to be divested, must not cause their wasting or deterioration, and
cannot sell, transfer, or otherwise impair their marketability or
viability. The Asset Maintenance Agreement specifies these obligations
in detail. The obligations of 1224 under the Asset Maintenance
Agreement will terminate upon consummation of the proposed acquisition.
VI. Opportunity for Public Comment
The proposed consent order has been placed on the public record for
sixty days for receipt of comments by interested persons. Comments
received during this period will become part of the public record.
After sixty days, the Commission will again review the agreement and
the comments received and will decide whether it should withdraw from
the agreement or make the proposed consent order final.
By accepting the proposed consent order subject to final approval,
the Commission anticipates that the competitive problems alleged in the
complaint will be resolved. The purpose of this analysis is to invite
public comment on the proposed consent order, including the proposed
sale of supermarkets to Fleming, Frederick County Foods, Richfood,
Safeway, and Supervalu, in order to aid the Commission in its
determination of whether to make the proposed consent order final. This
analysis is not intended to constitute an official interpretation of
the proposed consent order or the Asset Maintenance Agreement, nor is
it intended to modify the terms of the proposed consent order or Asset
Maintenance Agreement in any way.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 98-29846 Filed 11-6-98; 8:45 am]
BILLING CODE 6750-01-M
