Guinness Plc; Grand Metropolitan Plc; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 971-0081]

Guinness Plc; Grand Metropolitan Plc; Analysis To Aid Public

Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before February 20, 1998.

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

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

FOR FURTHER INFORMATION CONTACT:

William Baer, Federal Trade Commission, 6th & Pennsylvania Ave., NW, H-

374, Washington, DC 20580. (202) 326-2932. George S. Cary, Federal

Trade Commission, 6th & Pennsylvania Ave., NW, H-374, Washington, DC

20580. (202) 326-3741.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the above-captioned consent agreement containing a consent

order to cease and desist, having been filed with and accepted, subject

to final approval, by the Commission, has been placed on the public

record for a period of sixty (60) days. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the accompanying complaint. An electronic copy of the

full text of the consent agreement package can be obtained from the

Commission Actions section of the FTC Home Page (for December 15,

1997), on the World Wide Web, at ``http://www.ftc.gov/os/

actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, N.W.,

Washington, D.C. 20580, either in person or by calling (202) 326-3627.

Public comment is invited. Such comments or views will be considered by

the Commission and will be available for inspection and copying at its

principal office in accordance with Section 4.9(b)(6)(ii) of the

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

Analysis To Aid Public Comment on the Provisionally Accepted

Consent Order

The Federal Trade Commission has accepted for public comment from

Guinness plc (``Guinness'') and Grand Metropolitan plc (``Grand Met'')

an Agreement Containing Consent Order (``Proposed Consent Order''). The

Proposed Consent Order remedies the likely anticompetitive effects

arising from the proposed merger of Guinness and Grand Met in two

relevant product markets. This agreement has been placed on the public

record for sixty (60) days for receipt of comments from 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 consent order in the

agreement.

According to the draft of complaint that the Commission intends to

issue, Guinness and Grand Met are competitors in the sale and

distribution in the United States of premium Scotch and premium gin.

The premium Scotch products of Guinness include Johnnie Walker Red and

Dewar's White Label and the premium Scotch brands of Grand Met include

J&B Rare, J&B Select, and The Famous Grouse. The premium gin brands of

Guinness include Tanqueray gin and the premium gin brands of Grand Met

are Bombay Original and Bombay Sapphire.

The Commission's draft of complaint states that Guinness and Grand

Met entered into an agreement to merge their companies on May 11, 1997.

The size of the transaction, measured in terms of the market

capitalization of both parties, is about $36 billion.

The Commission is concerned that the proposed merger would

eliminate substantial competition between Guinness and Grand Met, and

increase concentration substantially, in the very highly concentrated

premium Scotch and premium gin markets, resulting in higher prices. The

Commission stated it has reason to believe that the proposed merger

would have anticompetitive effects and violate Section 7 of the Clayton

Act and Section 5 of the Federal Trade Commission Act.

In the United States premium Scotch market, Guinness is the largest

competitor with about 68% of all sales and Grand Met is the second

largest competitor, with about 24% of sales. Together, the merged firm

will control approximately 92% of all United States premium Scotch

sales. The proposed merger would increase the Herfindahl-Hirschman

Index (``HHI''), the customary measure of industry concentration, by

over 3000 points and produce a market concentration of over 8000

points. In the United States premium gin market, Guinness is the

largest competitor with about 58% of all sales and Grand Met is the

third largest, and about 15% of sales. Together, the merged firm will

control approximately 73% of all United States premium gin sales. The

proposed merger would increase the HHI by over 1700 points and produce

a market concentration of over 6000 points.

The Proposed Consent Order, if finally issued by the Commission,

would settle all of the charges alleged in the Commission's complaint.

Under the terms of the Proposed Consent Order, Guinness and Grand Met

will be required to divest their Dewar's Scotch, Bombay Original gin,

and Bombay Sapphire gin brands, worldwide, to one or two acquirers

acceptable to the Commission. To insure an uninterrupted supply of

Dewar's Scotch after the brand divestiture, Guinness will be required

to divest additional assets, including Scotch distilling capacity, if

the Commission should determine that these additional assets are

necessary for the acquirer effectively to compete. Also, to insure an

uninterrupted supply of Bombay Original and Bombay Sapphire gins,

Guinness and Grand Met may be required to produce these gins for the

acquirer, in England, should the independent third party that has been

producing Bombay Original and Bombay Sapphire for Grand Met not wish to

continue to do so for the acquirer.

Guinness and Grand Met will be required to complete the required

divestitures within six (6) months from the date of the Commission's

acceptance of the consent order for public comment. In the event

Guinness and Grand Met do not divest Dewar's, Bombay Original, and

Bombay Sapphire to an acquirer or acquirers acceptable to the

Commission in the requisite time, procedures for the appointment of a

trustee to sell the assets have been agreed to and will be triggered.

[[Page 66868]]

Accompanying the Proposed Consent Order is an Asset Maintenance

Agreement. Under its terms, Guinness and Grand Met are required to

preserve and maintain the competitive viability of all of the assets to

be divested in order to insure that the competitive value of these

assets will be maintained after the merger but before the assets are

actually divested.

By accepting the Proposed Consent Order subject to final approval,

the Commission anticipates that the competitive problems alleged in the

compliant will be resolved. The purpose of this analysis is to invite

and facilitate public comment concerning the Proposed Consent Order. It

is not intended to constitute an official interpretation of the

Proposed Consent Order, nor is it intended to modify the terms in any

way.

Donald S. Clark,

Secretary.

Separate Statement of Commissioner Mary L. Azcuenaga Concurring in Part

and Dissenting in Part in Guinness PLC, File No. 971-0081

Today, the Commission accepts for public comment a consent order

settling allegations that the merger of Guinness PLC and Grand

Metropolitan PLC would violate Section 7 of the Clayton Act and Section

5 of the Federal Trade Commission Act. The complaint alleges as

antitrust product markets: (1) ``premium Scotch,'' which is defined as

``blended Scotch whisky that is made and bottled in Scotland, generally

advertised, promoted, and available throughout the United States, and

sold at retail at prices comparable to the prices of the Johnnie Walker

Red, Dewar's White Label, and J&B Rare brands,'' and (2) ``premium

gin,'' which is defined as ``gin that is made and bottled in England,

generally advertised, promoted, and available throughout the United

States, and sold at retail at prices comparable to the prices of

Tanqueray, Bombay Original, and Bombay Sapphire brands.'' I cannot

support the complaint as written.

Although at first glance the markets may sound wacky (to use the

vernacular), the complaint merits our careful attention. For reasons

that are not apparent, the proposed product markets exclude brands not

marketed throughout the United States, if there are any, that compete

head to head with the national brands. By definition, the ``premium

gin'' product market also excludes domestically bottled gin brands, if

any, that are sold at prices comparable to Tanqueray and Bombay. I see

no reason for these seemingly arbitrary exclusions.

More importantly, the price limitations in the product markets do

not seem justifiable. As recognized in Commission precedent,

competition occurs along a continuum of prices as brands compete with

products above and below their prices. In Heublein, Inc., 96 F.T.C. 385

(1980), for example, the Commission dismissed the complaint based on

findings in an ``all wine'' market and the table, dessert and sparkling

wine submarkets. As then Commissioner Pitofsky stated in the Heublein

opinion, although the competitive offerings of the wine industry were

not altogether homogeneous, ``those diverse products nevertheless may

`appropriately be designated as a market' for antitrust analysis,'' 96

F.T.C. at 576 quoting Coca Cola Bottling Co. of New York, Inc., 93

F.T.C. 110 (1979).

Despite my disagreement with the allegations in the complaint, I

find reason to believe that the merger of Guinness PLC and Grand

Metropolitan PLC would violate the law on the basis of a broader market

and that an order to remedy the lessening of competition in the broader

market would be appropriate. The divestiture of the Dewar's Scotch and

Bombay gin brands will have some remedial effect in the broader market,

and for that reason, I have voted to accept the order for public

comment. After the public comment period, I will revisit the question

whether the order is sufficient or whether the Commission should reject

the order and seek additional divestitures in an administrative

proceeding.

[FR Doc. 97-33306 Filed 12-19-97; 8:45 am]

BILLING CODE 6750-01-M