The Scotts Co.; Proposed Consent Agreement With Analysis to Aid Public Comment

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