[Federal Register Volume 60, Number 115 (Thursday, June 15, 1995)]
[Notices]
[Pages 31470-31477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14693]
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FEDERAL TRADE COMMISSION
[File No. 951 0056]
The Scotts Co.; Proposed Consent Agreement With 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 acts and practices and unfair methods of competition, this
consent agreement, accepted subject to final Commission approval, would
require, among other things, Scotts, an Ohio-based corporation, to
divest its Peters Consumer Water Soluble Fertilizer Business and
related assets to Alljack & Company or another Commission-approved
buyer by no later than December 31, 1995. If the divestiture is not
completed on time, the consent agreement would permit the Commission to
appoint a trustee to complete the transaction. In addition, the consent
agreement would require the respondent to obtain Commission approval,
for a period of ten years, before acquiring any consumer water soluble
fertilizer business in the United States.
DATES: Comments must be received on or before [Insert date 60 days
after Federal Register publication date].
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th Street and Pennsylvania Avenue NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
Howard Morse or Robert Cook, FTC/S-3627, Washington, DC 20580, (202)
326-2949 or 326-2771.
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 following 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. 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)).
Agreement Containing Consent Order
In the matter of The Scotts Company, a corporation.
The Federal Trade Commission (``Commission'') having initiated an
investigation of the proposed acquisition by the Scotts Company
(``Scotts'') of Stern's Miracle-Gro Products, Inc. (``Miracle-Gro''),
and it now appearing that Scotts, hereinafter sometimes referred to as
``proposed respondent,'' is willing to enter into an agreement
containing an order to divest certain assets and to cease and desist
from making certain acquisitions, and providing for other relief:
It is hereby agreed by and between proposed respondent, by its duly
authorized officers and attorney, and counsel for the Commission that:
1. Proposed respondent Scotts is a corporation organized, existing
and doing business under and by virtue of the laws of the State of
Ohio, with its office and principle place of business located at 14111
Scottslawn Road, Marysville, Ohio 43041.
2. Proposed respondent admits all the jurisdictional facts set
forth in the draft of complaint.
3. Proposed respondent waives:
a. Any further procedural steps;
b. The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
c. All rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement;
and
d. Any claim under the Equal Access to Justice Act.
4. This agreement shall not become part of the public record of the
proceeding unless and until it is accepted by the Commission. If this
agreement is accepted by the Commission it, together with the draft of
complaint contemplated thereby, will be placed on the public record for
a period of sixty (60) days and information in respect thereto publicly
released. The Commission thereafter may either withdraw its acceptance
of this agreement and so notify the proposed respondent, in which event
it will take such action as it may consider appropriate, or issue and
serve its complaint (in such form as the circumstances may require) and
decision, in disposition of the proceeding.
5. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondent that the law has been
violated as alleged in the draft of complaint, or that the facts as
alleged in the draft complaint, other than jurisdictional facts, are
true.
6. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Sec. 2.34 of the Commission's
rules, the Commission may, without further notice to the proposed
respondent, (1) issue its complaint corresponding in form and substance
with the draft of complaint and its decision containing the following
order to divest and to cease and desist in disposition of the
proceeding and (2) make information public with respect thereto. When
so entered, the order to cease and desist shall have the same force and
effect and may be altered, modified or set aside in the same manner and
within the same time provided by statute for other orders. The order
shall become final upon service. Delivery by the U.S. Postal Service of
the complaint and decision containing the agreed-to order to proposed
respondent's address as stated in this agreement shall constitute
service. Proposed respondent waives any right it may have to any other
manner of service. The complaint may be used in construing the terms of
the order, and no agreement, understanding, representation, or
interpretation not contained in the order or the agreement may be used
to vary or contradict the terms of the order.
7. Proposed respondent has read the proposed complaint and order
contemplated hereby. Proposed respondent understands that once the
order has been issued, it will be required to file one or more
compliance reports showing that it has fully complied with the order.
Proposed respondent further understands that it may be liable for civil
penalties in the amount provided by law for each violation of the order
after it becomes final.
Order
I
It is ordered that, as used in this order, the following
definitions shall apply:
A. ``Respondent'' or ``Scotts'' means the Scotts Company, its
directors, officers, employees, agents and representatives,
predecessors, successors and assigns, its subsidiaries, divisions,
groups and affiliates controlled by the Scotts Company, and
[[Page 31471]] the respective directors, officers, employees, agents,
representatives, successors and assigns of each.
B. ``Miracle-Gro'' means Stern's Miracle-Gro Products, Inc., its
predecessors, successors and assigns, its subsidiaries, divisions,
groups and affiliates controlled by Stern's Miracle-Gro Products, Inc.
C. ``Alljack'' means Alljack & Company and Celex Corporation, their
predecessors, successors and assigns, subsidiaries, divisions, groups,
and affiliates.
D. ``Commission'' means the Federal Trade Commission.
E. The term ``Water Soluble Fertilizer'' means fertilizer that is
sold as a powder, composed principally of nitrogen, phosphorous and
potash, to be dissolved in water prior to application for use
principally on houseplants, gardens, shrubs and flowers.
F. The term ``Consumer Water Soluble Fertilizer'' means Water
Soluble Fertilizer packaged for sale in containers of less than 20
pounds.
G. The term ``Peters Consumer Water Soluble Fertilizer'' means
Consumer Water Soluble Fertilizer sold under the Peters brand name.
H. The term ``Peters Consumer Water Soluble Fertilizer Business''
means all assets, properties, business and goodwill, tangible and
intangible, relating to the manufacture or sale of Peters Consumer
Water Soluble Fertilizer in the United States, including, without
limitation, the following:
1. All Peters trademarks;
2. Inventory;
3. The right to use the same packaging and trade dress that Peters
has used for Consumer Water Soluble Fertilizer, provided that the right
to use the Scotts trademark is limited to the right to sell existing
inventory;
4. All customer lists, distribution agreements, vendor lists,
catalogs, sales promotion literature, advertising materials, research
materials, technical information, inventions, trade secrets,
intellectual property, patents, technology, know-how (including, but
not limited to manufacturing know-how), specifications, designs,
drawings, processes, quality control data, and formulas;
5. All rights, titles and interests in and to the contracts entered
into in the ordinary course of business with customers (together with
associated bid and performance bonds), suppliers, sales
representatives, distributors, agents, personal property lessors,
personal property lessees, licensors, licensees, consignors and
consignees;
6. All rights under warranties and guarantees, express or implied;
7. All books, records, and files; and
8. All items of prepaid expense.
The term ``Peters Consumer Water Soluble Fertilizer Business'' does
not include accounts receivable, the Peters production facilities
located at Allentown, Pennsylvania, the use of intangible assets
(including the use of the Peters trademarks on Water Soluble Fertilizer
in containers of 20 pounds or more) for the production or sale of
agricultural or commercial products, or the use of the Peters
trademarks on potting soil, perlite, or vermiculite.
I. The term ``Peters Business'' means all assets, properties,
business and goodwill, tangible and intangible, relating to the
manufacture or sale of all products that Scotts has sold under the
Peters trademarks during the five (5) years preceding the date on which
this agreement is accepted by the Commission, including, without
limitation, the Allentown, Pennsylvania plant where Peters products are
manufactured and including, without limitation, the following:
1. The Peters Consumer Water Soluble Fertilizer Business;
2. All machinery, fixtures, equipment, vehicles, transportation
facilities, furniture, tools and other tangible personal property;
3. All customer lists, vendor lists, catalogs, sales promotion
literature, advertising materials, research materials, technical
information, management information systems, software, inventions,
trade secrets, intellectual property, patents, technology, know-how,
specifications, designs, drawings, processes, quality control data, and
assets relating to research and development;
4. Inventory and storage capacity;
5. All rights, titles and interests in and to owned or leased real
property, together with appurtenances, licenses and permits;
6. All rights, titles and interests in and to the contracts entered
into in the ordinary course of business with customers (together with
associated bid and performance bonds), suppliers, sales
representatives, distributors, agents, personal property lessors,
personal property lessees, licensors, licensees, consignors and
consignees;
7. All rights under warranties and guarantees, express or implied;
8. All books, records, and files; and
9. All items of prepaid expense.
II
It is further ordered that:
A. Scotts shall divest, through sale or exclusive perpetual
license, absolutely and in good faith, no later than December 31, 1995,
the Peters Consumer Water Soluble Fertilizer Business as an ongoing
business and shall also, at the time of such divestiture, divest such
additional ancillary assets and ancillary businesses and effect such
arrangements as are necessary to assure the marketability and the
viability and competitiveness of the Peters Consumer Water Soluble
Fertilizer Business.
B. The divestiture shall be made either--
1. No later than ten (10) days from the date this order becomes
final, to Alljack, pursuant to the agreements between Scotts and
Alljack, which are Confidential Appendices II and III, or
2. To an acquirer that receives the prior approval of the
Commission and only in a manner that receives the prior approval of the
Commission.
The purpose of the divestiture of the Peters Consumer Water Soluble
Fertilizer Business is to ensure that the Peters Consumer Water Soluble
Fertilizer Business continues to operate as an ongoing business in the
same business in which it is engaged at the time this Agreement is
accepted by the Commission and to remedy the lessening of competition
resulting from the acquisition, as alleged in the Commission's
complaint.
C. Pending divestiture of the Peters Consumer Water Soluble
Fertilizer Business, respondent shall take such actions as are
necessary to maintain the viability and marketability of the Peters
Consumer Water Soluble Fertilizer Business, and to prevent the
destruction, removal, wasting, deterioration, or impairment of any part
of the Peters Consumer Water Soluble Fertilizer Business.
D. Unless the acquirer has its own source of supply, the
devestiture shall include an agreement by Scotts (the ``Supply
Agreement'') to supply Water Soluble Fertilizer for a period of two (2)
years from the date of the divestiture required by this Paragraph II.
The Water Soluble Fertilizer supplied pursuant to the Supply Agreement
shall, at the option of the acquirer, be of the same chemical
composition as, and of a quality equal to or greater than, the Water
Soluble Fertilizer marketed by the Peters Consumer Water Soluble
Fertilizer Business at the time this agreement is accepted by the
Commission for comment. The Supply Agreement shall obligate Scotts to
supply such Water Soluble Fertilizer at a price equal to direct cash
cost of raw materials, packaging, and labor (based on expenses during
the previous fiscal year), plus ten (10) percent. The Supply
[[Page 31472]] Agreement shall obligate Scotts to supply annually, at a
minimum, at the option of the acquirer, an amount of Water Soluble
Fertilizer, in containers ready for sale or in bulk, equal to the
greatest unit amount of Peters Consumer Water Soluble Fertilizer
produced by or on behalf of the Peters Consumer Water Soluble
Fertilizer Business during:
1. The twelve (12) months prior to the divestiture required by this
Paragraph II, and
2. Each of the five (5) calendar years preceding the divestiture
required by this Paragraph II.
E. The divestiture shall include a non-exclusive perpetual license,
with no continuing royalty, to manufacture Peters Consumer Water
Soluble Fertilizer for sale in the United States as it has been
manufactured at any time during the twelve (12) months preceding the
date on which this Agreement Containing Consent Order is accepted by
the Commission for public comment, as well as a royalty-free license
for all improvements to Peters' Water Soluble Fertilizer technology
that have been made up to the time of the divestiture required by this
Paragraph II. Such license shall give the acquirer the right to make
any improvements to the licensed technology; provided, however, that
such license need not give the acquirer rights in Scotts intellectual
property that Scotts has not used in connection with Peters Consumer
Water Soluble Fertilizer.
F. Respondent shall not offer Consumer Water Soluble Fertilizer
(including, but not limited to, Consumer Water Soluble Fertilizer
bearing the Miracle-Gro trademark) for sale using the Scotts trademark
for a period of two (2) years following the divestiture required by
this Paragraph II; provided, however, during that two (2) year period,
Scott may continue to sell the following products using the Scotts
trademark:
1. Scotts Water-Soluble Plant Food Powder, All Purpose Formula (8
ounce and 16 ounce sizes);
2. Scotts Water-Soluble Plant Food Powder, Houseplant/Foliage
Formula (8 ounce and 16 ounce sizes); and
3. Scotts Water-Soluble Plant Food Powder, African Violet/Flowering
Formula (8 ounce size).
G. At the time of the execution of a divestiture agreement between
Scotts and a proposed acquirer of the Peters Consumer Water Soluble
Fertilizer Business, Scotts shall provide the acquirer with a complete
list of all Scotts employees who have spent the majority of their time
on the development, distribution, marketing, or sale of Peters Consumer
Water Soluble Fertilizer during the twelve (12) months prior to the
date on which this agreement is accepted by the Commission. Such list
shall state each such individual's name, position, address, telephone
number, and a description of the duties of and work performed by the
individual in connection with the Peters Consumer Water Soluble
Fertilizer Business.
H. Scotts shall provide the individuals identified pursuant to
Paragraph II.G. of this order with financial incentives to continue in
their employment positions during the period covered by the Hold
Separate Agreement, hereto attached, and to accept employment with the
Commission-approved acquirer, if such employment is offered, at the
time of the divestiture. Such incentives shall include:
1. Continuation of all employee benefits offered by Scotts until
the date of the divestiture; and
2. A bonus equal to 25 percent of the total annual compensation of
any employee who agrees to employment with the Commission-approved
acquirer, payable upon the beginning of such employee's employment by
the Commission-approved acquirer.
I. The divestiture agreement may protect Scott's interest in the
Scotts trademark on inventory acquired by the acquirer of the Peters
Consumer Water Soluble Fertilizer Business and may provide for the
continued use by Scotts of the Peters trademarks for agricultural and
commercial products an consumer soil products.
J. Respondent shall comply with all terms of the Agreement to Hold
Separate, attached to this order and made a part hereof as Appendix I.
The Agreement to Hold Separate shall continue in effect until such time
as respondent has made the divestiture required by this order.
III
It is further ordered that:
A. If Scotts has not divested, absolutely and in good faith and
with the Commission's prior approval, the Peters Consumer Water Soluble
Fertilizer Business by December 31, 1995, the Commission may appoint a
trustee to divest the Peters Consumer Water Soluble Fertilizer
Business. If the trustee has not divested the Peters Consumer Water
Soluble Fertilizer Business within six (6) months after the trustee's
appointment, then the trustee may divest either the Peters Consumer
Water Soluble Fertilizer Business or the Peters Business. In the event
the Commission or the Attorney General brings an action pursuant to
section 5(l) of the Federal Trade Commission Act, 15 U.S.C. 45(l), or
any other statute enforced by the Commission, Scotts shall consent to
the appointment of a trustee in such action. Neither the appointment of
a trustee nor a decision not to appoint a trustee under this Paragraph
shall preclude the Commission or the Attorney General from seeking
civil penalties or any other relief available to it, including a court-
appointed trustee, pursuant to section 5(l) of the Federal Trade
Commission Act, or any other statute enforced by the Commission, for
any failure by the respondent to comply with this order.
B. If a trustee is appointed by the Commission or a court pursuant
to Paragraph III.A. of this order, respondent shall consent to the
following terms and conditions regarding the trustee's powers, duties,
authority, and responsibilities:
1. The Commission shall select the trustee, subject to the consent
of respondent, which consent shall not be unreasonably withheld. The
trustee shall be a person with experience and expertise in acquisitions
and divestitures. If respondent has not opposed, in writing, including
the reasons for opposing, the selection of any proposed trustee within
ten (10) days after notice by the staff of the Commission to respondent
of the identity of any proposed trustee, respondent shall be deemed to
have consented to the selection of the proposed trustee.
2. Subject to the prior approval of the Commission, the trustee
shall have the exclusive power and authority to divest the Peters
Consumer Water Soluble Fertilizer Business or the Peters Business.
3. Within ten (10) days after appointment of the trustee,
respondent shall execute a trust agreement that, subject to the prior
approval of the Commission and, in the case of a court-appointed
trustee, of the court, transfers to the trustee all rights and powers
necessary to permit the trustee to effect the divestiture of the Peters
Consumer Water Soluble Fertilizer Business or the Peters Business
required by this order.
4. The trustee shall have six (6) months from the date the
Commission approves the trust agreement described in Paragraph III.B.3.
to accomplish the divestiture of the Peters Consumer Water Soluble
Fertilizer Business, which shall be subject to the prior approval of
the Commission. If no acquirer of the Peters Consumer Water Soluble
Fertilizer Business is approved by the Commission by the end of the six
(6) month period (or at the end of any extensions to that period
pursuant to [[Page 31473]] this Paragraph III.B4.), then the trustee
shall have twelve (12) additional months to accomplish the divestiture
of the Peters Consumer Water Soluble Fertilizer Business or the Peters
Business, which shall be subject to the prior approval of the
Commission. If, however, at the end of the twelve (12) month period,
the trustee has submitted a plan of divestiture or believes that
divestiture can be achieved within a reasonable time, the divestiture
period may be extended by the Commission, or, in the case of a court-
appointed trustee, by the court; provided, however, the Commission may
extend this period only two (2) times.
5. The trustee shall have full and complete access to the
personnel, books, records, and facilities related to the Peters
Consumer Water Soluble Fertilizer Business or the Peters Business, or
to any other relevant information, as the trustee may request.
Respondent shall develop such financial or other information as such
trustee may request and shall cooperate with the trustee. Respondent
shall take no action to interfere with or impede the trustee's
accomplishment of the divestiture. Any delays in divestiture caused by
the respondent shall extend the time for divestiture under this
Paragraph in an amount equal to the delay, as determined by the
Commission, or, in the case of a court-appointed trustee, by the court.
6. The trustee shall use his or her best efforts to negotiate the
most favorable price and terms available in each contract that is
submitted to the Commission, subject to the respondent's absolute and
unconditional obligation to divest at no minimum price. The divestiture
shall be made in the manner and to the acquirer or acquirers as set out
in Paragraph II of this order; provided, however, if the trustee
receives bona fide offers from more than one acquiring entity, and if
the Commission determines to approve more than one such acquiring
entity, the trustee shall divest to the acquiring entity or entities
selected by respondent from among those approved by the Commission.
7. The trustee shall serve, without bond or other security, at the
cost and expense of respondent, on such reasonable and customary terms
and conditions as the Commission or a court may set. The trustee shall
have authority to employ, at the cost and expense of respondent, such
consultants, accountants, attorneys, investment bankers, business
brokers, appraisers, and other representatives and assistants as are
necessary to carry out the trustee's duties and responsibilities. The
trustee shall account for all monies derived from the divestiture and
all expenses incurred. After approval by the Commission and, in the
case of a court-appointed trustee, by the court, of the account of the
trustee, including fees for his or her services, all remaining monies
shall be paid at the direction of respondent and the trustee's power
shall be terminated. The trustee's compensation shall be based at least
in significant part on a commission arrangement (based on sales price)
contingent on the trustee's divesting the Peters Consumer Water Soluble
Fertilizer Business or the Peters Business.
8. Respondent shall indemnify the trustee and hold the trustee
harmless against any losses, claims, damages, liabilities, or expenses
arising out of, or in connection with, the performance of the trustee's
duties, including all reasonable fees of counsel and other expenses
incurred in connection with the preparation for, or defense of any
claim, whether or not resulting in any liability, except to the extent
that such liabilities, losses, damages, claims, or expenses result from
misfeasance, gross negligence, willful or wanton acts, or bad faith by
the trustee.
9. If the trustee ceases to act or fails to act diligently, a
substitute trustee shall be appointed in the same manner as provided in
Paragraph III.A. of this order.
10. The Commission or, in the case of a court-appointed trustee,
the court, may on its own initiative or at the request of the trustee
issue such additional orders or directions as may be necessary or
appropriate to accomplish the divestiture of the Peters Consumer Water
Soluble Fertilizer Business or the Peters Business required by this
order.
11. The trustee shall have no obligation or authority to operate or
maintain the Peters Consumer Water Soluble Fertilizer Business or the
Peters Business.
12. The trustee shall report in writing to respondent and the
Commission every sixty (60) days concerning the trustee's efforts to
accomplish the divestiture.
IV
It is further ordered that, for a period of ten (10) years from the
date this order becomes final, respondent shall not without the prior
approval of the Commission, directly or indirectly, through
subsidiaries, partnerships, or otherwise:
A. Acquire any stock, share capital, equity, or other interest in
any concern, corporate or non-corporate, engaged in at the time of such
acquisition, or within the two years preceding such acquisition engaged
in the sale of Consumer Water Soluble Fertilizer in the United States;
or
B. Acquire any assets used for or previously used for (and still
suitable for) the sale of Consumer Water Soluble Fertilizer in the
United States; provided, however, that prior approval shall not be
necessary for the acquisition of assets used to manufacture Consumer
Water Soluble Fertilizer, the acquisition of assets in the ordinary
course of business, or the acquisition of assets valued at less than
$100,000 from the same person within any twelve (12) month period.
V
It is further ordered that within sixty (60) days after the date
this order becomes final and every sixty (60) days thereafter until
respondent has fully complied with the divestiture provisions of
Paragraphs II and III of this order, respondent shall submit to the
Commission a verified written report setting forth in detail the manner
and form in which it intends to comply, is complying, and has complied
with Paragraphs II and III of this order. Respondent shall include in
its compliance reports, among other things that are required from time
to time, a full description of the efforts being made to comply with
Paragraphs II and III of the order, including a description of all
substantive contacts or negotiations for the divestiture and the
identity of all parties contacted. Respondent shall include in its
compliance reports copies of all written communications to and from
such parties, all internal memoranda, and all reports and
recommendations concerning divestiture; provided, however, that
respondent is not obligated to produce copies of documents subject to
any legally recognized privilege.
VI
It is further ordered that one (1) year from the date this order
becomes final, annually for the next nine (9) years on the anniversary
of the date this order becomes final, and at such other times as the
Commission may require, respondent shall file a verified written report
with the Commission setting forth in detail the manner and form in
which it has complied and is complying with Paragraphs II and IV of
this order.
VII
It is further ordered that respondent shall notify the Commission
at least thirty (30) days prior to any proposed [[Page 31474]] change
in the corporate respondent such as dissolution, assignment sale
resulting in the emergence of a successor corporation, or the creation
or dissolution of subsidiaries or any other change in the corporation
that may affect compliance obligations arising out of the order.
VIII
It is further ordered that, for the purpose of determining or
securing compliance with this order, and subject to any legally
recognized privilege, upon request, respondent shall permit any duly
authorized representatives of the Commission:
A. Access, during office hours and in the presence of counsel, to
inspect and copy all books, ledgers, accounts, correspondence,
memoranda and other records and documents in the possession or under
the control of respondent relating to any matters contained in this
order; and
B. Upon five (5) days notice to respondent, with respondent's
counsel present, and without restraint or interference, to interview
officers, employees, or agents of respondent.
AGREEMENT TO HOLD SEPARATE
In the matter of The Scotts Company, a corporation.
[File No. 951-0056]
This Agreement to Hold Separate (``Hold Separate'') is by and
between the Scotts Company (``Scotts''), a corporation organized,
existing, and doing business under and by virtue of the laws of
Ohio, with its office and principal place of business at 14111
Scottslawn Road, Marysville, Ohio 43041 and the Federal Trade
Commission (``the Commission''), an independent agency of the United
States Government, established under the Federal Trade Commission
Act of 1914, 15 U.S.C. 41, et seq. (collectively the ``Parties'').
Premises
Whereas, on January 26, 1995, Scotts entered into an Agreement
and Plan of Merger with Stern's Miracle-Gro Products, Inc.
(``Miracle-Gro'') to acquire all of the voting securities of
Miracle-Gro in exchange for voting securities of Scotts (hereinafter
the ``Acquisition'');I21Whereas, Scotts is a leading producer and
marketer of consumer lawn care products, including consumer water
soluble fertilizer under the Peters brand name;
Whereas, Miracle-Gro, with its principal office and place of
business located at 800 Port Washington Blvd., Port Washington, New
York 11050 is the leading marketer of water soluble fertilizer in
the United States;
Whereas, the Commission is now investigating the Acquisition to
determine whether it would violate any of the statutes enforced by
the Commission;
Whereas, if the Commission accepts the Agreement Containing
Consent Order (``Consent Order''), the Commission must place it on
the public record for a period of at least sixty (60) days and may
subsequently withdraw such acceptance pursuant to the provisions of
Section 2.34 of the Commission's Rules;
Whereas, the Commission is concerned that if an understanding is
not reached, preserving the status quo ante of the Peters Consumer
Water Soluble Fertilizer Business (as defined in Paragraph I of the
Consent Order) and Miracle-Gro during the period prior to the final
acceptance of the Consent Order by the Commission (after the 60-day
public comment period), divestiture resulting from any proceeding
challenging the legality of the Acquisition might not be possible,
or might be less than an effective remedy;
Whereas, the Commission is concerned that if the Acquisition is
consummated, it will be necessary to preserve the Commission's
ability to require the divestiture of the Peters Consumer Water
Soluble Fertilizer Business, the Peters Business, or Miracle-Gro and
the Commission's right to have the Peters Consumer Water Soluble
Fertilizer Business, the Peters Business, and Miracle-Gro continue
as viable competitors;
Whereas, the Commission is concerned that the exchange of
competitively sensitive information between persons operating and
managing Miracle-Gro, the Peters Business, and the Peters Consumer
Water Soluble Fertilizer Business may lessen the competitive
viability of any divestiture if the Commission accepts the proposed
Consent Order and makes it final;
Whereas, the purposes of the Hold Separate and the Consent Order
are:
1. To preserve the Peters Consumer Water Soluble Fertilizer
Business, the Peters Business, and Miracle-Gro as viable,
independent businesses pending the Commission's final approval of
the Consent Order and the divestiture of a viable and ongoing
enterprise,
2. To remedy any anticompetitive effects of the Acquisition,
3. To preserve the Peters Consumer Water Soluble Fertilizer
Business, the Peters Business, and Miracle-Gro as ongoing and
competitive entities engaged in the same business in which they are
presently employed until the Commission gives final approval to the
Consent Order and the divestiture is achieved, and
4. To protect the competitive viability of Miracle-Gro, the
Peters Business, and the Peters Consumer Water Soluble Fertilizer
Business by preventing the exchange of competitively sensitive
information among persons managing or operating those businesses;
Whereas, Scotts' entering into this Hold Separate shall in no
way be construed as an admission by Scotts that the Acquisition is
illegal;
Whereas, Scotts understands that no act or transaction
contemplated by this Hold Separate shall be deemed immune or exempt
from the provisions of the antitrust laws or the Federal Trade
Commission Act by reason of anything contained in this Hold
Separate:
Now, Therefore, the parties agree, upon the understanding that
the Commission has not yet determined whether the acquisition will
be challenged, and in consideration of the Commission's agreement
that it will not seek further relief from Scotts with respect to the
Acquisition if the Consent Order is made final, except that the
Commission may exercise any and all rights to enforce this Hold
Separate, the Consent Order to which it is annexed and made a part
thereof and the Order, once it becomes final, and in the event that
the required divestiture is not accomplished, to appoint a trustee
to seek divestiture of the Peters Consumer Water Soluble Fertilizer
Business or the Peters Business pursuant to the Consent Order, as
follows:
1. Scotts agrees to execute and be bound by the Consent Order.
2. To ensure the complete independence and viability of the
Peters Consumer Water Soluble Fertilizer Business, the Peters
Business, and Miracle-Gro and to assure that no competitive
information is exchanged between Miracle-Gro and either the Peters
Consumer Water Soluble Fertilizer Business or the Peters Business,
Scotts shall hold Miracle-Gro separate and apart as it is presently
constituted, from the date this Hold Separate is accepted until the
earlier of the completion of the divestiture obligations required by
the Consent Order or three (3) days after the Commission withdraws
its acceptance of the Consent Order pursuant to Sec. 2.34 of the
Commission's rules, on the following terms and conditions:
a. Except as required by law, and except to the extent that
necessary information is exchanged in defending investigations or
litigation, obtaining legal advice, or complying with this Hold
Separate or the Consent Order, Scotts (including, but not limited
to, any officer, director, employee, or agent of Scotts) shall not
receive or have access to, or the use of, any material confidential
information of Miracle-Gro or the activities of the board of
directors of Miracle-Gro (the ``Miracle-Gro Board'') not in the
public domain that relates to Water Soluble Fertilizer, nor shall
Miracle-Gro (including, but not limited to, any officer, director,
employee or agent of Miracle-Gro) receive or have access to, or the
use of, any material confidential information of Scotts or the
activities of the board of directors of Scotts (the ``Scotts
Board'') not in the public domain that relates to Water Soluble
Fertilizer; provided, however, after the Consent Order is made
final, Scotts and Miracle-Gro may exchange information concerning
Water Soluble Fertilizer sold outside the United States. Scotts may
receive on a regular basis from Miracle-Gro aggregate financial and
other information necessary to allow Scotts to file financial
reports, tax returns, personnel reports, and reports with the
Securities and Exchange Commission. Any such information that is
obtained pursuant to this subparagraph shall be used only for the
purpose set forth in this subparagraph. (``Material confidential
information,'' as used herein, means competitively sensitive or
proprietary information not independently known to Scotts from
sources other than Miracle-Gro or the Miracle-Gro Board and includes
but is not limited to customer lists, price lists, prices, marketing
methods, advertising plans, [[Page 31475]] patents, technologies,
processes, or other trade secrets.)
b. Except as expressly provided in this Hold Separate, all
manufacturing, sales, licensing, and other business relationships
relating to Water Soluble Fertilizer between Scotts and Miracle-Gro
shall be conducted at arm's length and on commercial terms available
to other persons. Furthermore, Scotts and Miracle-Gro may not
integrate or coordinate the marketing of the products of Scotts and
Miracle-Gro.
c. Scotts shall circulate a notice of this Hold Separate and
Consent Order, in the form attached hereto as Attachment A, to the
management employees (including, but not limited to, officers) of
Scotts and Miracle-Gro (including, but not limited to, members of
the board of directors of Scotts (the ``Scotts Board'') and members
of board of directors of Miracle-Gro (the ``Miracle-Gro Board''), as
well as to any employees or agents of Scotts or Miracle-Gro who
participate directly or indirectly in managing or operating any
business affected by this Hold Separate or the Consent Order. Scotts
shall also appropriately display a notice of this Hold Separate and
Consent Order in the form attached hereto as Attachment A.
d. Scotts shall report in writing to the Commission every sixty
(60) days concerning Scott's efforts to accomplish the purposes of
this Hold Separate.
e. Scotts shall maintain the marketability, viability, and
competitiveness of the Peters Consumer Water Soluble Fertilizer
Business and the Peters Business, and shall not cause or permit the
destruction, removal, wasting, deterioration, or impairment of any
assets or business it may have to divest except in the ordinary
course of business and except for ordinary wear and tear, and Scotts
shall not sell, transfer, encumber (other than in the normal course
of business), or otherwise impair the marketability, viability or
competitiveness of the Peters Consumer Water Soluble Fertilizer
Business or the Peters Business.
f. Scotts shall continue to provide to the Peters Business and
the Peters Consumer Water Soluble Fertilizer Business such support
services as it provided during the twelve (12) months and the
calendar year prior to the acceptance of the Consent Order by the
Commission. The Peters Business and the Peters Consumer Water
Soluble Fertilizer Business shall be staffed with sufficient
employees to maintain the viability and competitiveness of the
Peters Business and the Peters Consumer Water Soluble Fertilizer
Business, which employees shall be the employees of the Peters
Business or Peters Consumer Water Soluble Fertilizer Business that
have managed and operated the Peters Business and the Peters
Consumer Water Soluble Fertilizer Business during the twelve (12)
months prior to the Commission's acceptance of Consent Order by the
Commission and may also be hired from sources other than the Peters
Business or the Peters Consumer Water Soluble Fertilizer Business.
The compensation of the management employees of the Peters Business
and the Peters Consumer Water Soluble Fertilizer Business shall be
based in significant part on the sales of the Peters Business or the
Peters Consumer Water Soluble Fertilizer Business, as applicable.
Scotts shall facilitate the efforts of the Peters Business and the
Peters Consumer Water Soluble Fertilizer Business to promote Peters
products (including, but not limited to Peters Consumer Water
Soluble Fertilizer products) to retailers, both at trade shows and
otherwise, pending the divestiture required by the Consent Order.
Scotts' obligation to facilitate those efforts shall include,
without limitation, permitting the Peters Business and the Peters
Consumer Water Soluble Fertilizer Business to participate either
with Scotts or independently in all industry trade shows. Scotts
shall provide the Peters Business and the Peters Consumer Water
Soluble Fertilizer Business with any funds to accomplish the
foregoing.
g. Scotts shall cause the Peters Consumer Water Soluble
Fertilizer Business to expend in 1995 at an annual rate at least
equal to the funds expended for 1993 or 1994 (whichever is greater)
for advertising and promotion of Peters Consumer Water Soluble
Fertilizer during 1995 and shall cause the Peters Consumer Water
Soluble Fertilizer Business to increase such spending as reasonably
necessary in light of competitive conditions. If the Peters Consumer
Water Soluble Fertilizer Business is not divested by December 31,
1995, then Scotts shall thereafter cause the Peters Consumer Water
Soluble Fertilizer Business to expend for advertising and promotion
of Peters Consumer Water Soluble Fertilizer at an annual rate of no
less than 200 percent of the amount expended for 1995 for that
purpose until such time as divestiture has been accomplished.
h. The Peters Business shall be staffed with sufficient
employees to maintain the viability and competitiveness of the
Peters Business, which employees shall be the employees of the
Peters Business that have managed and operated the Peters Business
during the twelve (12) months prior to the Commission's acceptance
of Agreement by the Commission and may also be hired from sources
other than the Peters Business. Each Peters Business management
employee shall execute a confidentiality agreement prohibiting the
disclosure of any confidential information of the Peters Business.
3. Scotts agrees that it will comply with the provisions of this
Paragraph 3 of this Hold Separate, in addition to the terms and
conditions in Paragraph 2, from the date this Hold Separate is
accepted until the earlier of the Commission's final approval of the
Consent Order or three (3) days after the Commission withdraws its
acceptance of the Consent Order pursuant to Section 2.34 of the
Commission's Rules:
a. All earnings and profits of Miracle-Gro shall be retained
separately by Miracle-Gro. Miracle-Gro shall be held separate and
apart and shall be operated independently of Scotts except to the
extent that Scotts must exercise direction and control over Miracle-
Gro to assure compliance with this Agreement or the Consent Order.
Except as expressly provided in this Hold Separate, all
manufacturing, sales, licensing, and other business relationships
between Scotts and Miracle-Gro shall be conducted at arm's length
and on commercial terms available to other persons.
b. Except as required by law, and except to the extent that
necessary information is exchanged in defending investigations or
litigation, obtaining legal advice, or complying with this Hold
Separate or the Consent Order, Scotts (including, but not limited
to, any officer, director, employee, or agent of Scotts) shall not
receive or have access to, or the use of, any material confidential
information of Miracle-Gro or the activities of the Miracle-Gro
Board not in the public domain, nor shall Miracle-Gro (including,
but not limited to, any officer, director, employee or agent of
Miracle-Gro) receive or have access to, or the use of, any material
confidential information about the Peters Consumer Water Soluble
Fertilizer Business or the Peters Business not in the public domain.
Scotts may receive on a regular basis from Miracle-Gro aggregate
financial and other information necessary to allow Scotts to file
financial reports, tax returns, personnel reports, and reports with
the Securities and Exchange Commission. Any such information that is
obtained pursuant to this subparagraph shall be used only for the
purpose set forth in this subparagraph.
c. Scotts shall not change the composition of the Miracle-Gro
Board and, except as expressly provided in this Hold Separate,
Scotts shall not change the composition of the management of
Miracle-Gro (except that the Miracle-Gro Board shall have the power
to remove management employees for cause) and members of the
Miracle-Gro Board shall not serve as officers, directors, employees,
or agents of Scotts. Scotts shall not exercise direction or control
over, or influence directly or indirectly, Miracle-Gro or the
Miracle-Gro Board; provided, however, Scotts may exercise only such
direction and control as is necessary to assure compliance with this
Hold Separate, the order and with all applicable laws. Meetings of
the Scotts Board and meetings of the Miracle-Gro Board shall be
audio recorded and the recording retained for two (2) years after
the termination of the Hold Separate. Notwithstanding, in order to
maintain Miracle-Gro's value, Scotts may direct the management of
Miracle-Gro with regard to the following matters: investment
decisions relating to Miracle-Gro's cash, decisions relating to the
handling of claims and litigation, proposed acquisitions and
divestitures outside of the ordinary course of business, and changes
in Miracle-Gro's corporate structure.
d. The Chairman of the Miracle-Gro Board shall have the power to
remove members of the Miracle-Gro Board for cause and to require
Scotts to appoint replacement members to the Miracle-Gro Board who
are not officers, directors, employees, or agents of Scotts. If the
Chairman of the Miracle-Gro Board ceases to act or fails to act
diligently, a substitute chairman shall be appointed from among the
members of the Miracle-Gro Board.
e. If necessary, Scotts shall provide Miracle-Gro with
sufficient working capital to maintain the same level of sales as
during the twelve (12) months preceding the date of the Hold
Separate. [[Page 31476]]
f. All material transactions of Miracle-Gro, out of the ordinary
course of business and not precluded by this Hold Separate, shall be
subject to a majority vote of the Miracle-Gro Board. The Miracle-Gro
Board shall serve at the cost and expense of Scotts. Scotts shall
indemnify the Miracle-Gro Board against any losses or claims of any
kind that might arise out of its involvement under this Hold
Separate, except to the extent that such losses or claims result
from misfeasance, gross negligence, willful or wanton acts, or bad
faith by the Miracle-Gro Board directors.
g. Scotts shall take all reasonable steps, consistent with the
other provisions of this Hold Separate, to maintain the
marketability, viability, and competitiveness of Miracle-Gro, and
not to cause or permit the destruction, removal, wasting,
deterioration, or impairment of any assets or business it may have
to divest except in the ordinary course of business and except for
ordinary wear and tear, and Scotts shall not sell, transfer,
encumber (other than in the normal course of business), or otherwise
impair the marketability, viability or competitiveness of Miracle-
Gro.
4. Should the Federal Trade Commission seek in any proceeding to
compel Scotts to divest itself of the Peters Consumer Water Soluble
Fertilizer Business, the Peters Business, Miracle-Gro, or any
additional assets, or to seek any other equitable relief, Scotts
shall not raise any objection based on the expiration of the
applicable Hart-Scott-Rodino Antitrust Improvement Act waiting
period or the fact that the Commission has permitted the
Acquisition. Scotts also shall waive all rights to contest the
validity of this Hold Separate.
5. For the purpose of determining or securing compliance with
this Hold Separate, subject to any legally recognized privilege, and
upon written request with reasonable notice to Scotts made to its
General Counsel, Scotts, the Peters Consumer Water Soluble
Fertilizer Business, the Peters Business, and Miracle-Gro shall
permit any duly authorized representative or representatives of the
Commission:
a. Access during the office hours of Scotts, the Peters Consumer
Water Soluble Fertilizer Business, the Peters Business, or Miracle-
Gro and in the presence of counsel to inspect and copy all books,
ledgers, accounts, correspondence, memoranda, and other records and
documents in the possession or under the control of Scotts, the
Peters Consumer Water Soluble Fertilizer Business, the Peters
Business, or Miracle-Gro relating to compliance with this Hold
Separate;
b. Upon five (5) days notice to Scotts, the Peters Consumer
Water Soluble Fertilizer Business, the Peters Business, or Miracle-
Gro and without restraint or interference from it, to interview
officers or employees of Scotts, the Peters Consumer Water Soluble
Fertilizer Business, the Peters Business, or Miracle-Gro, which
officers or employees may have counsel present, regarding any such
matters.
6. This Hold Separate shall not be binding until approved by the
Commission.
Attachment A--Notice of Divestiture and Requirement for Confidentiality
The Scotts Company (``Scotts'') has entered into an Agreement
Containing Consent Order (``Consent Order'') and an Agreement to
Hold Separate with the Federal Trade Commission (``Commission'')
relating to the divestiture of the Peters Consumer Water Soluble
Fertilizer Business or the Peters Business. Until after the
Commission's order becomes final and the Peters Consumer Water
Soluble Fertilizer Business or the Peters Business is divested,
Stern's Miracle-Gro Products, Inc. (``Miracle-Gro'') must be managed
and maintained as a separate, ongoing business, independent of all
other Scotts businesses. All competitive information relating to
Miracle-Gro must be retained and maintained on a confidential basis
by the persons involved in Miracle-Gro, and such persons are
prohibited from providing, discussing, exchanging, circulating, or
otherwise furnishing any such information to or with any other
person whose employment involves any other Scotts business,
including the Peters Consumer Water Soluble Fertilizer Business or
the Peters Business.
Any violation of the Agreement Containing Consent Order or the
Agreement to Hold Separate, incorporated by reference as part of the
Agreement to Hold Separate, incorporated by reference as part of the
Agreement Containing Consent Order, may subject Scotts to civil
penalties and other relief as provided by law.
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an Agreement Containing Consent Order
(``Agreement'') from the Scotts Company (``Scotts'').
The proposed Order has been placed on the public record for sixty
(60) days for reception of comments by interested persons. Comments
received 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.
Scotts has proposed to acquire the outstanding voting securities of
Stern's Miracle-Gro Products, Inc. (``Miracle-Gro'') in exchange for
voting securities of Scotts. Scotts and Miracle-Gro value the
transaction at approximately $200 million. The proposed complaint
alleges that the merger, if consummated, would violate section 7 of
Clayton Act, as amended, 15 U.S.C. 18, and section 5 of the Federal
Trade Commission Act, as amended, 15 U.S.C. 45.
The complaint alleges that Scotts and Miracle-Gro compete in the
market for water soluble fertilizer for United States consumer use.
Scotts sells consumer water soluble fertilizer under the Peters brand
name, while Miracle-Gro sells consumer water soluble fertilizer under
the Miracle-Gro brand name. The proposed complaint alleges that the
merger would significantly increase concentration in an already highly
concentrated market, combining a firm with a 70 percent market share
and a firm with a six to seven percent market share. The proposed
complaint also alleges that timely entry on a competitively meaningful
scale would require a significant sunk investment in advertising. Entry
is likely to require a significant amount of time because of the
seasonal nature of the consumer lawn and garden industry and consumer
reluctance to try new fertilizer brands. The proposed complaint
concludes that the merger would increase the likelihood of unilateral
anticompetitive behavior by the merged firm, because Miracle-Gro
consumer water soluble fertilizer is the closest substitute for Peters
consumer water soluble fertilizer. In addition, the complaint alleges
that the merger would increase the likelihood of coordinated
interaction among marketers of consumer water soluble fertilizer.
The proposed Order would remedy the alleged violation by replacing
the lost competition that would result from the merger of Scotts and
Miracle-Gro. The proposed Order would require Scotts to divest the
Peters consumer water soluble fertilizer business, including the
exclusive right to sell products to consumers under the Peters brand
name. The divestiture is to be made either (1) to Alljack & Co. or (2)
to an acquirer approved by the Commission. In order to ensure that the
acquirer would be able to step quickly into Scotts' shoes in marketing
Peters water soluble fertilizer, the proposed Order requires Scotts to
divest its inventory and to enter into an interim year supply agreement
with the acquirer. After the expiration of the supply agreement, the
acquirer will be able to either manufacture or to have a supplier
manufacture water soluble fertilizer identical to the water soluble
fertilizer supplied by Scotts under the supply agreement. The proposed
Order prohibits Scotts from putting the Scotts brand name on water
soluble fertilizer for consumer use for a period of two (2) years to
prevent activity that might undermine the Peters brand for a reasonable
transition period after the divestiture.
A Hold Separate Agreement signed by Scotts provides that Miracle-
Gro will be operated independently of Scotts, pending the Commission's
final approval of the proposed Order. The Hold Separate Agreement also
requires Scotts to maintain the viability of the Peters consumer water
soluble fertilizer business and limits the exchange of certain
information pending divestiture. [[Page 31477]]
The proposed Order provides that Scotts shall divest the Peters
consumer water soluble fertilizer business no later than December 31,
1995. If Scotts does not divest the Peters consumer water soluble
fertilizer business during the allotted time period, then a trustee may
be appointed to divest the business. If the trustee does not divest the
business within six (6) months, then the trustee may divest the entire
Peter business (consisting of all consumer and professional
horticultural products sold under the Peters brand name, as well as the
assets needed to manufacture and sell those products) within a twelve
(12) month period. The proposed Order requires Scotts to submit a
report of compliance with the proposed Order's divestiture requirements
within sixty (60) days following the date the proposed Order becomes
final, and every sixty (60) days thereafter until Scotts has completed
the divestiture.
Finally, the proposed Order prohibits Scotts from acquiring any
interest in any other company engaged in the sale of water soluble
fertilizer for consumer use, without prior approval from the
Commission, for a period of ten (10) years.
The purpose of this analysis is to facilitate public comment on the
proposed Order. This analysis is not intended to constitute an official
interpretation of the Agreement or the proposed Order or in any way to
modify the terms of the Agreement or the proposed Order.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 95-14693 Filed 6-14-95; 8:45 am]
BILLING CODE 6750-01-M
