Revco D.S., Inc.; Proposed Consent Agreement With Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 941 0075]

Revco D.S., Inc.; 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, a Ohio-based drugstore chain to divest,

within one year of the order, to a Commission approved acquirer, all

assets related to the retail sale of prescription drugs in either the

respondent's store or in the acquired Hook-SupeRx (HSI) retail store in

each of three geographic areas, and to complete the divestiture within

one year. If not complete in that period of time, the order would

require the respondent to consent to the appointment of a trustee to

divest the assets. In addition, the proposed consent agreement would

require the respondent to obtain prior Commission approval, for ten

years, before acquiring any similar business interest in any of the

three specified towns.

DATES: Comments must be received on or before September 26, 1994.

ADDRESSES: Comments should be directed to FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., N.W., Washington, DC. 20580.

FOR FURTHER INFORMATION CONTACT:Laura Wilkinson or Ann Malester, FTC/S-

2224, Washington, DC 20580. (202) 226-2830 or 326-2682.

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 following consent agreement containing a consent order

to divest, 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

Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR

4.9(b)(6)(ii)).

In the matter of Revco D.S., Inc., a corporation. File No. 941-

0075.

Agreement Containing Consent Order

The Federal Trade Commission (``Commission'') having initiated an

investigation of the proposed acquisition of all of the voting stock of

Hook SupeRx, Inc. (``HSI''), by Revco D.S., Inc. (``Revco''), and it is

now appearing that Revco, hereinafter sometimes referred to as

``Proposed Respondent,'' is willing to enter into an agreement

containing an order (``Agreement'') to divest certain assets, and to

cease and desist from making certain acquisitions, and providing for

certain other relief:

It is hereby agreed by and between Proposed Respondent, by its duty

authorized officers and attorneys, and counsel for the Commission that:

1. Proposed Respondent Revco is a corporation organized, existing,

and doing business under and by the virtue of the laws of the State of

Delaware with its office and principal place of business located at

1925 Enterprise Parkway, Twinsburg, Ohio 44087.

2. Proposed Respondent admits all the jurisdictional facts set

forth in the draft of complaint here attached.

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 here attached, or that

the facts as alleged in the draft complaint, other than the

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 Section 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 here attached 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 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 United

States 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 services. 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. ``Revco'' means Revco D.S., Inc., its predecessors,

subsidiaries, divisions, groups and affiliates controlled by Revco, and

their respective directors, officers, employees, agents,

representatives, and their respective successors and assigns.

B. ``Commission'' means the Federal Trade Commission.

C. ``Acquisition'' means the acquisition of all the voting stock of

Hook-SupeRx, Inc. (``HSI`'') by Respondent Revco.

D. ``Acquirer'' means the party or parties to whom Respondent Revco

divests the assets herein ordered to be divested.

E. ``Prescription drugs'' means ethical drugs available at retail

only by prescription.

F. ``HSI Pharmacy Business'' means HSI's business of selling

prescription drugs at any of the retail stores listed in Paragraph

I.(J). of this Order, but does not include HSI's business of selling

other products in those retail stores.

G. ``HSI Pharmacy Assets'' means all assets constituting the HSI

Pharmacy Business, excluding those assets pertaining to the Hook,

SupeRx, and Brooks trade names, trade dress, trade marks and service

marks, and to Revco's proprietary point of sale equipment or its

PAL system, and including but not limited to:

1. Leases, at the Acquirer's option;

2. zoning approvals and registrations, at the Acquirer's option;

3. books, records, manuals, and operations reports relating to the

HSI Pharmacy Business, but only if the divestiture is to an Acquirer

that does not already operate a pharmacy in any location;

4. inventory instruction, or, at the Acquirer's option, lists of

stock keeping units (``SKUs''), i.e., all forms, package sizes and

other units in which prescription drugs are sold and which are used in

records of sales and inventories;

5. lists of all prescription drug customers, including but not

limited to third party insurers, including all files of names,

addresses, and telephone numbers of the individual customer contacts,

the unit and dollar amounts of sales, by product, to each customer, and

store profit and loss statement(s);

6. all names and addresses of prescription drug manufacturers and

distributors that supply or have supplied HSI within the six months

preceding the date this Order becomes final; and

7. goodwill, tangible and intangible, utilized in the sale of

prescription drugs.

H. ``Revco Pharmacy Business'' means Revco's business of selling

prescription drugs at any of the retail stores listed in Paragraph

I.(J). of this Order, but does not include Revco's business of selling

other products in those retail stores.

I. ``Revco Pharmacy Assets'' means all assets constituting the

Revco Pharmacy Business, excluding those assets pertaining to the Revco

trade names, trade dress, trade marks and service marks, and to Revco's

proprietary point of sale equipment or its PAL system, and

including but not limited to:

1. Leases, at the Acquirer's option;

2. zoning approvals and registrations, at the Acquirer's option;

3. books, records, manuals, and operations reports, relating to the

Revco Pharmacy Business, but only if the divestiture is to an Acquirer

that does not already operate a pharmacy in any location;

4. inventory instruction, or, at the Acquirer's option, lists of

SKUs, i.e., all forms, package sizes and other units in which

prescription drugs are sold and which are used in records of sales and

inventories;

5. lists of all prescription drug customers, including but not

limited to third party insurers, including all files of names,

addresses, and telephone numbers of the individual customer contacts,

the unit and dollar amounts of sales, by product, to each customer, and

store profit and loss statement(s);

6. all names and addresses of prescription drug manufacturers and

distributors that supply or have supplied Revco within the six months

preceding the date this Order becomes final; and

7. goodwill, tangible and intangible, utilized in the sale of

prescription drugs.

J. ``Assets To Be Divested'' means either the HSI Pharmacy Assets

or the Revco Pharmacy Assets constituting the HSI Pharmacy Business or

the Revco Pharmacy Business in the following cities or towns:

1. Covington, Virginia;

2. Marion, Virginia; and

3. Radford, Virginia.

K. ``Competitiveness, viability and marketability'' of the Assets

To Be Divested mean that Respondent shall continue the operation of the

Assets To Be Divested in the ordinary course of business without

material change or alteration that would adversely affect the value or

goodwill of the Assets To Be Divested.

II

It is further ordered That:

A. Respondent shall divest, absolutely and in good faith, within

twelve (12) months of the date this Order becomes final, the Assets To

Be Divested.

B. Respondent shall divest the Assets To Be Divested only to an

acquirer or acquirers that receive 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 Assets To Be Divested

is to ensure the continued use of the Assets To Be Divested as ongoing

viable pharmacies engaged in the same businesses in which the Assets To

Be Divested are presently employed and to remedy the lessening of

competition resulting from the acquisition as alleged in the

Commission's complaint.

C. Pending divestiture of the Assets To Be Divested, Respondent

shall take such actions as are necessary to maintain the

competitiveness, viability and marketability of the Assets To Be

Divested and to prevent the destruction, removal, wasting,

deterioration, or impairment of any Assets To Be Divested except for

ordinary wear and tear.

D. If a divestiture includes a lease of physical space, and if

pursuant to that lease Respondent through default of the lease or

otherwise regains possession of the space, Respondent must notify the

Commission of such repossession within thirty (30) days and must

redivest such assets or interest pursuant to Paragraph II of this Order

within six (6) months of such repossession. If Respondent has not

redivested such assets or interest pursuant to Paragraph II of this

Order within six (6) months of such repossession, the provisions of

Paragraph III shall apply to these assets.

III

It is further ordered That:

A. If Respondent has not divested, absolutely and in good faith and

with the Commission's prior approval, the Assets To Be Divested within

twelve (12) months of the date this Order becomes final, the Commission

may appoint a trustee to divest the Assets To Be Divested. In the event

the Commission or the Attorney General brings an action pursuant to

Sec. 5(l) of the Federal Trade Commission Act, 15 U.S.C. Sec. 45(l), or

any other statute enforced by the Commission, Respondent 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 Sec. 5(l) of the Federal Trade

Commission Act, or any other statute enforced by the Commission, for

any failure by 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 Assets To Be

Divested.

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 required by

this Order.

4. The trustee shall have twelve (12) months from the date the

Commission approves the trust agreement described in Paragraph III.B.3

to accomplish the divestiture, which shall be subject to the prior

approval of the Commission. If, however, at the end of the twelve-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.

5. The trustee shall have full and complete access to the

personnel, books, records, and facilities related to the Assets To Be

Divested, or to any other relevant information, as the trustee may

reasonably request. Respondent shall develop such financial or other

information as such trustee may reasonably 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 Respondent shall extend the time for divestiture

under this Paragraph in an amount equal to the delay, as determined by

the Commission or, for 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 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 acquirer, and if the

Commission determines to approve more than one such acquirer, the

trustee shall divest to the acquirer or acquirers 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

reasonably 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

contingent on the trustee's divesting the Assets To Be Divested.

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, and Respondent shall either defend against such claims or pay

the trustee's expenses, including all reasonable fees of counsel and

other expenses incurred in connection with the preparation for, or

defense of any such 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 required by this Order.

11. The trustee shall have no obligation or authority to operate or

maintain the Assets To Be Divested.

12. The trustee shall report in writing to Respondent and to the

Commission every sixty (60) days concerning the trustee's efforts to

accomplish 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, leasehold or other interest in any concern, corporate

or non-corporate, presently engaged in, or within the six months

preceding such acquisition engaged in, the business of selling

prescription drugs at retail stores located in any of the cities or

towns listed in Paragraph I. (J). of this Order; or (B) Acquire any

assets used for, or previously used for (and still suitable for use

for), the business of selling prescription drugs at retail stores

located in any of the cities or towns listed in Paragraph I.(J). of

this Order from any concern, corporate or non-corporate, presently

engaged in or within the six months preceding such acquisition engaged

in, the business of selling prescription drugs at retail stores located

in any of the cities or towns listed in Paragraph I.(J). of this Order.

Provided, however, that these prohibitions shall not relate to the

construction of new facilities.

V

It is further ordered That:

A. Within sixty (60) days after the date this Order becomes final

and every sixty (60) days thereafter until Respondent has fully

complied with the 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 those provisions.

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 also

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.

B. One (1) year from the date this Order becomes final, annually

thereafter for the next nine (9) years on the anniversary of the date

this Order became 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 Paragraph IV. of this Order.

VI

It is further ordered That Respondent shall notify the Commission

at least thirty (30) days prior to any proposed 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.

VII

It is further ordered That, for the purpose of determining or

securing compliance with this Order, Respondent shall permit any duly

authorized representative 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

consent order; and

B. Upon five (5) days notice to Respondent, and without restraint

or interference from it, to interview officers, directors, or employees

of Respondent, who may have counsel present, regarding such matters.

Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted

provisionally an agreement containing a proposed Consent Order from

Revco D.S., Inc. (``Revco'') under which Revco would divest pharmacy

assets in three (3) geographic locations where it faces limited

competition. Revco operates the Revco chain of drug stores.

The proposed Consent 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.

On March 31, 1994 Revco and Hook-SupeRx, Inc. (``HSI'') executed an

Agreement and Plan or Merger providing for the acquisition by Revco of

all of the voting securities of HSI. The proposed complaint alleges

that the proposed acquisition, if consummated, would constitute a

violation of Section 7 of the Clayton Act, as amended, 15 U.S.C.

Sec. 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. Sec. 45,

in the market for the sale of prescription drugs in retail stores in

the following towns: Covington, Virginia; Marion, Virginia; and

Radford, Virginia (hereinafter ``relevant geographic area''). The

proposed Consent Order would remedy the alleged violation by

maintaining the current number of competitors in the relevant

geographic areas where Revco and HSI are direct competitors and where

they face limited competition.

The proposed Consent Order provides that within one (1) year of the

Order becoming final, Revco shall divest all assets related to the

retail sale of prescription drugs in Revco or HSI retail stores in the

relevant geographic areas. The divestiture of the Revco or HSI pharmacy

business in the relevant geographic areas shall be made only to an

acquirer or acquirers that receive prior approval of the Commission and

only in a manner that receives the prior approval of the Commission.

The assets shall be divested to an eligible acquirer or acquirers that

will operate a pharmacy business in the relevant geographic areas.

Eligible acquirers in each relevant geographic area include, but are

not limited to: owners of retail stores that currently do not operate a

pharmacy in that relevant geographic area; persons previously employed

by Revco or HSI; or persons who will open a new retail store. In the

event that Revco has not divested the Revco or HSI pharmacy assets in

the relevant areas in one (1) year, the proposed Consent Order provides

that Revco shall consent to the appointment by the Commission of a

trustee to divest the pharmacy assets.

Under the provisions of the Consent Order, Revco is also required

to provide to the Commission a report of its compliance with the

divestiture provisions of the Order within sixty (60) days following

the date this Order becomes final, and every sixty (60) days thereafter

until Revco has completely divested its interest in assets related to

the retail sale of prescription drugs in the relevant geographic areas.

The proposed Order will also prohibit Revco, for a period of ten (10)

years, from acquiring, without Federal Trade Commission approval, any

stock in any concern engaged in the business of selling prescription

drugs at retail in the relevant geographic areas or any assets used for

the business of selling prescription drugs at retail in the relevant

geographic areas.

One year from the date the Order becomes final and annually

thereafter for nine (9) years, Revco will be required to provide to the

Commission a report of its compliance with the Consent Order. The

Consent Order also requires Revco to notify the Commission at least

thirty (30) day prior to any change in the structure of Revco resulting

in the emergence of a successor.

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. 94-18260 Filed 7-26-94; 8:45 am]

BILLING CODE 6750-01-M