Albertson's, Inc., et al.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 981-0134]

Albertson's, Inc., et al.; 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 an the terms of the

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

these allegations.

DATES: Comments must be received on or before November 30, 1998.

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

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

FOR FURTHER INFORMATION CONTACT:

William Baer or Richard Liebeskind, FTC/H-374, Washington, DC 20580.

(202) 326-2932 or 326-2441.

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

Trade

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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 complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for September 22, 1998), 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, NW, Washington, DC 20580, either in person or by calling (202)

326-3627. Public comment is invited. Such comments or views will be

considered by the Commission and will be available for inspection and

copying at its principal office in accordance with Section

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

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

Analysis of The Draft Complaint, Proposed Consent Order, and Asset

Maintenance Agreement to Aid Public Comment

I. Introduction

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

public comment from Albertson's, Inc. (``Albertson's''), Locomotive

Acquisition Corporation (``Locomotive''), Buttrey Food and Drug Store

Company (``Buttrey''), and FS Equity Partners II, L.P. (``FS Equity

Partners'')(collectively ``the proposed Respondents'') an Agreement

Containing Consent Order (``the proposed consent order'') and an Asset

Maintenance Agreement. Locomotive is a wholly-owned subsidiary of

Albertson's, and FS Equity Partners owns a majority of the voting

securities of Buttrey. The proposed consent order is designed to remedy

likely anticompetitive effects arising from Albertson's and

Locomotive's proposed acquisition of the outstanding shares of Buttrey.

II. Description of the Parties and the Proposed Acquisition

Albertson's, a Delaware corporation headquartered in Boise, Idaho,

operates approximately 916 supermarkets in 23 Western, Midwestern, and

Southern states. Albertson's supermarkets operate under the

``Albertson's'' and ``Max Food and Drug'' trade names. In the states

where Albertson's competes with Buttrey, Albertson's operates nine

supermarkets in Montana (eight directly compete with Buttrey stores)

and nine supermarkets in Wyoming (seven directly compete with Buttrey

stores). Albertson's total sales for the fiscal year ending January 29,

1998, were approximately $14.7 billion. At this time, based on total

sales, Albertson's is the fourth largest supermarket chain in the

United States.

Buttrey, a Delaware corporation headquartered in Great Falls,

Montana, operates 44 supermarkets in Montana, Wyoming, and North

Dakota. Buttrey operates supermarkets under the ``Buttrey Big Fresh,''

``Buttrey Food & Drug,'' and ``Buttrey Fresh Foods'' trade names.

Buttrey's total sales for the fiscal year ending January 31, 1998, were

$391.4 million. FS Equity Partners owns 50.8% of the outstanding shares

of Buttrey and is the ultimate parent entity. Freeman Spogli & Co.,

Inc., an investment firm, is the general partner of FS Equity Partners.

On or about January 19, 1998, Albertson's and Locomotive entered

into an Agreement and Plan of Merger (``the proposed acquisition'')

with Buttrey to acquire through a cash tender offer all of the

outstanding common stock of Buttrey for $15.50 per share. Albertson's

will also assume Buttrey's debt obligations. The total value of the

proposed acquisition, including debt obligations, is approximately $174

million.

III. The Draft Complaint

The draft complaint accompanying the proposed consent order alleges

that the proposed acquisition under which Albertson's and Locomotive

would acquire all of the outstanding shares of Buttrey violates Section

5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45. The

draft complaint also alleges that the proposed acquisition would, if

consummated, substantially lessen competition in violation of Section 7

of the 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 draft complaint alleges that the relevant line of commerce

(i.e., the product market) is the retail sale of food and grocery items

in supermarkets. Supermarkets provide a distinct set of products and

services for consumers who desire to one-stop shop for food and grocery

products. Supermarkets carry a full line and wide selection of both

food and nonfood products (typically more than 10,000 different stock-

keeping units (``SkUs'')) as well as a deep inventory of those SKUs. In

order to accommodate the large number of food and nonfood products

necessary for one-stop shopping, supermarkets are large stores that

typically have at least 10,000 square feet of selling space.

Supermarkets compete primarily with other supermarkets that provide

one-stop shopping for food and grocery products. Supermarkets primarily

base their food and grocery prices on the prices of food and grocery

products sold at nearby supermarkets. Supermarkets do not regularly

price-check food and grocery products sold at other types of stores and

do not significantly change their food and grocery prices in response

to prices at other types of stores. Most consumers shopping for food

and grocery products at supermarkets are not likely to shop elsewhere

in response to a small price increase by supermarkets.

Retail stores other than supermarkets that sell food and grocery

products, such as neighborhood ``mom & pop'' grocery stores,

convenience stores, specialty food stores (e.g., seafood markets,

bakeries, etc.), club stores, military commissaries, and mass

merchants, do not effectively constrain prices at supermarkets because

they operate significantly different retail formats. None of these

stores offers a supermarket's distinct set of products and services

that enable consumers to one-stop shop for food and grocery products.

According to the draft complaint, the relevant sections of the

country (i.e., the geographic markets) in which to analyze the

acquisition of Buttrey by Albertson's and Locomotive are the areas in

and near following cities and towns: (a) Billings, Montana; (b)

Bozeman, Montana, (c) Butte, Montana; (d) Great Falls, Montana; (e)

Helena, Montana; (f) Missoula, Montana; (g) Casper, Wyoming; (h)

Cheyenne, Wyoming; (I) Cody, Wyoming; (j) Gillette, Wyoming; and (k)

Laramie, Wyoming.

According to the draft complaint, the relevant markets are highly

concentrated, whether measured by the Herfindahl-Hirschman Index

(commonly referred to as ``HHI'') or by two-firm and four-firm

concentration ratios.\1\ The acquisition would substantially increase

concentration in each market. Albertson's and Buttrey have a combined

market share of more than 35% in each geographic market. The post-

acquisition HHIs in the geographic markets range from 2,264 to 10,000.

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\1\ The HHI is a measurement of market concentration calculated

by summing the squares of the individual market shares of all the

participants.

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Albertson's and Buttrey are direct competitors in every geographic

market. According to the draft complaint, Albertson's and Locomotive's

proposed acquisition of Buttrey, if consummated, may substantially

lessen competition in the relevant markets by eliminating direct

competition between supermarkets owned or controlled by Albertson's and

supermarkets owned or controlled by Buttrey; by increasing the

likelihood that Albertson's will unilaterally exercise market power; or

by increasing the likelihood of, or facilitating, collusion or

coordinated interaction among the remaining supermarket firms. Each of

these effects increases the likelihood that the prices of food,

groceries or services will increase, and the quality and selection of

food, groceries or services will decrease, in the relevant sections of

the country. According to the draft complaint, entry is difficult and

would not be timely, likely, or sufficient to prevent anticompetitive

effects in the relevant geographic markets.

IV. Terms of the Agreement Containing Consent Order, i.e., the

Proposed Consent Order

The proposed consent order attempts to remedy the Commission's

competitive concerns about the proposed acquisition. Under the terms of

the proposed consent order, the proposed Respondents must divest

fifteen specific supermarkets in the relevant markets. Six of the

supermarkets that the proposed Respondents must divest are currently

owned and operated by Albertson's (of which five operate under the

``Albertson's'' banner and one operates under the ``Max'' banner) and

nine of the supermarkets are currently owned and operated by Buttrey

(of which two operate under the ``Buttrey Big Fresh'' banner and seven

operate under the ``Buttrey Fresh Foods'' banner). The proposed

Respondents must divest thirteen supermarkets to Smith's Food & Drug

Centers, Inc. (``Smith's''), a wholly-owned subsidiary of Fred Meyer,

Inc., and two supermarkets to Supervalu Holdings, Inc., a wholly-owned

subsidiary of Supervalu, Inc. (collectively ``Supervalu''). The

specific supermarkets that the proposed Respondents must divest to

Smith's and Supervalu are listed below.

The Commission's goal in evaluating possible purchasers of divested

assets is to maintain the competitive environment that exists prior to

the merger. When divestiture is an appropriate remedy in a supermarket

merger, the Commission requires the merging parties to find a buyer for

the divested stores. A proposed buyer must not itself present

competitive problems. For example, the Commission is less likely to

approve a buyer that already has a large retail presence in the

relevant geographic area than a buyer without such a presence. The

Commission is satisfied that the purchasers presented by the parties

are well qualified to run the divested stores and pose no separate

competitive issues.

Although a supermarket chain is the proposed purchaser in many of

the markets in this matter, this does not represent a Commission

position that only large chains can be competitive in the supermarket

business. Indeed, in several cases during the last few years,

supermarkets required to be divested as a result of a Commission merger

investigation have been sold to independent store operators (often with

financial support from a wholesaler). See Jitney-Jungle Stores of

America, Inc., Docket No. C-3784 (1998), Koninklijke Ahold nv, 122

F.T.C. 248 (1996), Schnuck Markets, Inc., 119 F.T.C. 798 (1995),

Schwegmann Giant Super Markets, Inc., 119 F.T.C. 783 (1995), Red Apple

Companies, Inc., 119 F.T.C. 273 (1995). With respect to the proposed

divestiture in this matter, the proposed purchaser in Casper, Wyoming

is Supervalu, Inc., itself a supplier of independent grocers.

Under the terms of the proposed consent order, the proposed

Respondents must divest thirteen supermarkets to Smith's and two

supermarkets to Supervalue either within ten days after the date on

which Albertson's and Locomotive complete their proposed acquisition of

the outstanding shares of Buttrey or four months after the date the

proposed Respondents have signed the proposed consent order, whichever

is earlier. Alternatively, the proposed Respondents shall divest the

supermarkets to another acquirer that receives the prior approval of

the Commission within three months after the proposed consent order

becomes final. A sale to Smith's must be in accordance with the

agreement between Albertson's and Smith's dated August 10, 1998. A sale

to Supervalue must be in accordance with the agreement between

Albertson's and Supervalu dated August 12, 1998. Supervalu cannot sell

either of the two divested supermarkets within three years of when the

proposed consent order becomes final to anyone without the prior

approval of the Commission. If the proposed Respondents fail to satisfy

any of the divestiture provisions, the Commission may appoint a trustee

to divest supermarkets to satisfy the terms of the proposed consent

order.

Eight of the supermarkets that the proposed Respondents must divest

are located in Montana--two in Billings, two in Butte, and one each in

Bozeman, Great Falls, Helena, and Missoula. Seven of the supermarkets

that the proposed Respondents must divest are located in Wyoming--two

in Casper, two in Cheyenne, and one each in Cody, Gillette, and

Laramie.

The thirteen supermarkets that the proposed Respondents must divest

to Smith's in accordance with the agreement between Albertson's and

Smith's dated August 10, 1998, are the following:

1. Buttery store no. 3925 operating under the ``Buttrey Big Fresh''

trade name, which is located at 1601 Marketplace Drive, Great Falls, MT

59404 (Cascade County).

2. Buttery store no. 3934 operating under the ``Buttrey Big Fresh''

trade name, which is located at 2825 West Main Street, Bozeman, MT

59715 (Gallatin County).

3. Buttery store no. 3824 operating under the ``Buttrey Fresh

Foods'' trade name, which is located at 1000 Boulder Avenue, Helena, MT

59601 (Lewis and Clerk County).

4. Albertson's store no. 226 operating under the ``Albertson's''

trade name, which is located at 1906 Brooks Street, Missoula, MT 59801

(Missoula County).

5. Buttery store no. 3930 operating under the ``Buttrey Fresh

Foods'' trade name, which is located at 3745 Harrison Avenue, Butte, MT

59701 (Silver Bow County).

6. Buttery store no. 3985 operating under the ``Buttrey Fresh

Foods'' trade name, which is located at 600 South Excelsior Street,

Butte, MT 59701 (Silver Bow County).

7. Albertson's store no. 209 operating under the ``Albertson's''

trade name, which is located at 1633 Grand Avenue, Billing, MT 59102

(Yellowstone County).

8. Albertson's store no. 232 operating under the ``Albertson's''

trade name, which is located at 1531 Main Street, Billings, MT 59101

(Yellowstone County).

9. Albertson's store no. 805 operating under the ``Albertson's''

trade name, which is located at 1209 15th Street, Laramie, WY 82070

(Albany County).

10. Buttery store no. 3855 operating under the ``Buttrey Fresh

Foods'' trade name, which is located at 906 Camel Drive, Gillette, WY

82716 (Campbell County).

11. Albertson's store no. 863 operating under the ``Albertson's''

trade name, which is located at 3745 E. Lincoln

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Way, Cheyenne, WY 82001 (Laramie County).

12. Albertson's store no. 1804 operating under the ``Max'' trade

name, which is located at 1600 E. Pershing Blvd., Cheyenne, WY 82001

(Laramie County).

13. Buttery store no. 3941 operating under the ``Buttrey Fresh

Foods'' trade name, which is located at 1526 Rumsey Avenue, Cody, WY

82414 (Park County).

The two supermarkets that the proposed Respondents must divest to

Supervalu in accordance with the agreement between Albertson's and

Supervalu dated August 12, 1998, are the following:

1. Buttery store no. 3872 operating under the ``Buttrey Fresh

Foods'' trade name, which is located at 2101 East 12th Street, Casper,

WY 82601 (Natrona County).

2. Buttery store no. 3878 operating under the ``Buttrey Fresh

Foods'' trade name, which is located at 4075 Cy Avenue, Caspter, WY

82601 (Natrona County).

For a period of ten years from the date the proposed consent order

becomes final, the proposed Respondents are prohibited from acquiring,

without prior notice to the Commission, supermarket assets located in,

or any interest (such as stock) in any entity that owns or operates a

supermarket located in, Cascade, Gallatin, Lewis and Clerk, Missoula,

Silver Bow, and Yellowstone counties in Montana, and Albany, Campbell,

Laramie, Natrona, and Park counties in Wyoming. This provision does not

prevent the proposed Respondents from constructing new supermarket

facilities on their own; nor does it prevent the proposed Respondents

from leasing facilities not operated as supermarkets within the

previous six months.

For a period of ten years, the proposed consent order also

prohibits the proposed Respondents from entering into or enforcing any

agreement that restricts the ability of any person that acquires any

supermarket, any leasehold interest in any supermarket, or any interest

in any retail location used as a supermarket on or after January 1,

1998, to operate a supermarket at that site if such supermarket was

formerly owned or operated by the proposed Respondents in Cascade,

Gallatin, Lewis and Clark, Missoula, Silver Bow, and Yellowstone

counties in Montana, and Albany, Campbell, Laramie, Natrona, and Park

counties in Wyoming. In addition, the proposed Respondents may not

remove any equipment from a supermarket they own or operate in these

counties prior to a sale, sublease, assignment, or change in occupancy

in these counties, except in the ordinary course of business, or except

as part of any negotiation for a sale, sublease, assignment, or change

in occupancy of such supermarket.

The proposed Respondents are required to provide to the Commission

a report of compliance with the proposed consent order within thirty

(30) days following the date on which they signed the proposed consent,

every thirty (30) days thereafter until the divestitures are completed,

and annually for a period of ten years. The obligations of FS Equity

Partners under the proposed consent order will terminate upon

consummation of the proposed acquisition between Albertson's,

Locomotive, and Buttrey.

V. Terms of the Asset Maintenance Agreement

The proposed Respondents also entered into an Asset Maintenance

Agreement. Under the terms of the Asset Maintenance Agreement, from the

time Albertson's and Locomotive acquire the outstanding stock of

Buttrey until the divestitures have been completed, the proposed

Respondents must maintain the viability, competitiveness and

marketability of the assets to be divested, and must not cause their

wasting or deterioration, and cannot sell, transfer, or otherwise

impair their marketability or viability. The Asset Maintenance

Agreement specifies these obligations in detail. The obligations of FS

Equity Partners under the Asset Maintenance Agreement will terminate

upon consummation of the proposed acquisition between Albertson's,

Locomotive, and Buttrey.

VI. Opportunity for Public Comment

The proposed consent order has been placed on the public record for

sixty (60) days for receipt of comments by interested persons. Comments

received during this period will become part of the public record.

After sixty 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 consent order.

By accepting the proposed consent order subject to final approval,

the Commission anticipates that the competitive problems alleged in the

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

public comment on the proposed consent order, including the proposed

sale of supermarkets to Smith's and Supervalu, to aid the Commission in

its determination of whether it should make final the proposed consent

order contained in the agreement. This analysis is not intended to

constitute an official interpretation of the proposed consent order or

the Asset Maintenance Agreement, nor is it intended to modify the terms

of the proposed consent order or Asset Maintenance Agreement in any

way.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 98-26028 Filed 9-28-98; 8:45 am]

BILLING CODE 6750-01-M