[Federal Register Volume 61, Number 242 (Monday, December 16, 1996)]
[Notices]
[Pages 66041-66042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31803]
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FEDERAL TRADE COMMISSION
[File No. 971-0016; 971-0017]
J.C. Penney Company, Inc.; Thrift Drug, Inc.; Analysis To Aid
Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: In settlement of alleged violations of federal law prohibiting
unfair or deceptive acts or practices and unfair methods of
competition, this consent agreement, accepted subject to final
Commission approval, would require, among other things, Penney, the
parent company of Thrift Drug, to divest a total of 161 drug stores in
North and South Carolina by March 1997. The agreement settles
allegations that Penney's acquisition of Eckerd Corporation and 190
Rite Aid stores in these two states would violate federal antitrust
laws by allowing the firm to raise prices for pharmacy services to
health insurance companies and other third party payors.
DATES: Comments must be received on or before February 14, 1997.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., NW., Washington, DC. 20580.
FOR FURTHER INFORMATION CONTACT:
William J. Baer, Federal Trade Commission, H-374, 6th and Pennsylvania
Ave, NW, Washington, DC 20580. (202) 326-2932
George S. Cary, Federal Trade Commission, H-374, 6th and Pennsylvania
Ave, NW, Washington, DC 20580. (202) 326-3741
Ann Malester, Federal Trade Commission, S-2308, 6th and Pennsylvania
Ave, NW, Washington, DC 20580. (202) 326-2682
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Sec. 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 accompanying complaint. An electronic copy of the
full text of the consent agreement package can be obtained from the
Commission Actions section of the FTC Home Page (for December 9, 1996),
on the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A
paper copy can be obtained from the FTC Public Reference Room, Room H-
130, Sixth Street and Pennsylvania Avenue, NW., Washington, DC. 20580,
either in person or by calling (202) 326-3627. Public comment is
invited. Such comments or views will be considered by the Commission
and will be available for inspection and copying at its principal
office in accordance with Sec. 4.9(b)(6)(ii) of the Commission's rules
of practice (16 CFR 4.9(b)(6)(ii)).
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an agreement containing a proposed Consent Order
from J.C. Penney Company, Inc. and its wholly-owned subsidiary Thrift
Drug, Inc. (collectively ``J.C. Penney/Thrift'') under which J.C.
Penney/Thrift would be required to divest a total of 34 Thrift Drug
retail drug stores in the Raleigh-Durham and Charlotte, North Carolina
metropolitan areas and all of the Rite Aid retail drug stores in the
state of North Carolina and in the Charleston, South Carolina
metropolitan area, to a Commission-approved purchaser. The agreement is
designed to remedy the anticompetitive effects resulting from J.C.
Penney/Thrift's acquisitions of both the Eckerd Corporation and the
Rite Aid drug stores in North Carolina and South Carolina.
The proposed Consent Order has been placed on the public record for
sixty (60) days for reception of comments by interested persons.
Comments received
[[Page 66042]]
during this period will become part of the public record. After sixty
(60) days, the Commission will again review the agreement and the
comments received and will decide whether it should withdraw from the
agreement or make final the agreement's proposed Order.
The proposed complaint alleges that the proposed acquisitions, if
consummated, would constitute violations of section 7 of the Clayton
Act, as amended, 15 U.S.C. 18, and section 5 of the FTC Act, as
amended, 15 U.S.C. 45, in the market for the retail sale of pharmacy
services to third-party payors.
The retail sale of pharmacy services to third-party payors refers
to prescription drugs sold by retail outlets such as drug store chains,
independent drug stores, food stores and mass merchandise stores, to
third-party payors, which include insurance carriers, health
maintenance organizations, preferred provider organizations, and
corporate employers. Third-party payors provide retail pharmacy service
benefits to their beneficiaries, typically through intermediaries known
as pharmacy benefit management (``PBM'') firms that create and
administer retail pharmacy networks on behalf of third-party payors,
whereby third-party payor beneficiaries may go to any pharmacy
participating in the network to have prescriptions filled. In
establishing these pharmacy networks, third-party payors rely on
competition between large pharmacy chains to drive down the cost of
pharmacy services. In markets where only a small number of pharmacy
chains compete, third-party payors pay higher rates for pharmacy
services. Where a single pharmacy chain controls a large share of
pharmacy locations in a given area, that chain is able to extract
higher prices, and this situation is exacerbated when the second
largest pharmacy chain in that given area has a much smaller number of
pharmacies than the largest one.
J.C. Penney/Thrift's proposed acquisitions of Eckerd and the Rite
Aid stores in North Carolina and South Carolina will give the combined
entity a dominant position in the state of North Carolina and its three
major metropolitan areas--Charlotte, Greensboro, and Raleigh-Durham--
and in Charleston, South Carolina, the second largest metropolitan area
in South Carolina, and as a result, the ability to increase prices for
the retail sale of pharmacy services to third-party payors. Further,
timely entry is unlikely in the market for the retail sale of pharmacy
services to third-party payors in these geographic markets on the scale
necessary to offset the competitive harm likely from the combination of
J.C. Penney/Thrift, Eckerd and Rite Aid.
The proposed Consent Order would remedy the alleged violations by
replacing the lost competition that would result from the acquisitions.
Under the proposed Consent Order, J.C. Penney/Thrift is required to
divest within four (4) months of November 21, 1996, the date J.C.
Penney/Thrift signed the Consent Agreement, the following: fourteen
(14) Thrift drug stores in the Charlotte metropolitan area; twenty (20)
Thrift drug stores in the Raleigh-Durham metropolitan area; all Rite
Aid drug stores in North Carolina (110 stores); and all Rite Aid drug
stores in the Charleston, South Carolina metropolitan area (17 stores).
In the event that J.C. Penney/Thrift does not acquire the Rite Aid
stores in North Carolina and South Carolina, then J.C. Penney/Thrift
will have five (5) months from November 21, 1996, to sell the 34 Thrift
drug stores in Charlotte and Raleigh-Durham, North Carolina. The
proposed Order specifies that the 34 Thrift drug stores will go to a
single purchaser to ensure competition by recreating a chain of
sufficient size and coverage to serve as an alternative anchor pharmacy
chain for a PBM retail pharmacy network.
Under the proposed Order, if the divestiture is not accomplished
within the required time period, then the Commission may appoint a
trustee to divest not only the 34 Thrift drug stores and the Rite Aid
stores in North Carolina and Charleston, South Carolina, but also the
remaining sixty-three (63) Rite Aid stores in South Carolina,
representing the entire package of Rite Aid stores that J.C. Penney/
Thrift had proposed to acquire. Further, under the proposed Order, J.C.
Penney/Thrift is prohibited from acquiring any of the Rite Aid stores
in North Carolina and Charleston, South Carolina until it has entered
into an agreement, approved by the Commission, to divest those stores.
The Commission has not required a hold separate agreement in this case
because the proposed Order contemplates a short divestiture time
period; the appointment of a trustee should the divestiture not occur
within the prescribed time period; and a prohibition against J.C.
Penney/Thrift's acquiring any of the North Carolina and the Charleston,
South Carolina Rite Aid stores until it has entered an agreement with a
Commission-approved purchaser to divest those stores.
Under the provisions of the proposed Order, J.C. Penney/Thrift is
also required to provide the Commission with a report of compliance
with the divestiture provisions of the Order within thirty (30) days
following the date this Order becomes final, and every thirty (30) days
thereafter until J.C. Penney/Thrift has fully complied with the
divestiture provisions of the proposed Order.
The purpose of this analysis is to facilitate public comment on the
proposed Order, and it is not intended to constitute an official
interpretation of the agreement and proposed Order or to modify in any
way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 96-31803 Filed 12-13-96; 8:45 am]
BILLING CODE 6750-01-P
