Koninklijke Ahold NV, et al.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 9810254]

Koninklijke Ahold NV, et al.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

-----------------------------------------------------------------------

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 January 8, 1999.

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 or James Fishkin, FTC/H-

374, Washington, D.C. 20580. (202) 326-2932 or 326-2663.

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 complaint. An electronic copy of the

[[Page 60348]]

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

Home Page (for October 20, 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, 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 of the Proposed Consent Order, Asset Maintenance

Agreement, and the Draft Complaint To Aid Public Comment

I. Introduction

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

public comment from Koninklijke Ahold nv (``Ahold''), Giant Good Inc.

(``Giant''), and The 1244 Corporation (``1224'') (collectively ``the

proposed Respondents'') an Agreement Containing Consent Order (``the

proposed consent order'') and an Asset Maintenance Agreement. The

proposed Respondents have also reviewed a draft complaint contemplated

by the Commission. The proposed consent order is designed to remedy

likely anticompetitive effects arising from Ahold's proposed

acquisition of all of the Class AC voting stock of Giant from 1224 and

all of the Class A non-voting common stock of Giant for $43.50 per

share for cash. Respondent 1224 owns all of the Class AC voting stock

of Giant, which elects five of the nine directors of Giant.

II. Description of the Parties and the Proposed Acquisition

Ahold, headquartered in Zaandam, The Netherlands, is one of the

world's largest supermarket firms, operating approximately 3,000 stores

in Europe, North and South America, and Asia. In the United States,

Ahold is the seventh largest supermarket chain. Ahold has acquired nine

supermarket chains during the 1980s and 1990s: Top's, Stop & Shop, BI-

LO, Giant Food Stores, Edwards, Mel's Markets, Mayfair, Red Food, and

Finast. Ahold had $14.29 billion in U.S. revenues in the fiscal year

that ended on December 28, 1997. The acquisition of Giant would make

Ahold the fifth largest supermarket firm in the United States.

Today, Ahold operates Ahold USA, Inc., a wholly-owned subsidiary,

and, through various restructurings, four wholly-owned regional

supermarket firms: BI-LO, Inc., Top's Markets, Inc., Giant Food Stores,

Inc. (``Giant-Carlisle''), and The Stop & Shop Companies, Inc. Ahold's

supermarkets that directly compete against Giant's supermarkets are

part of the Giant-Carlisle division. The Giant-Carlisle division

operates supermarkets in Maryland under the ``Martin's'' trade name and

in Pennsylvania under the ``Giant'' trade name.

Giant, a Delaware corporation headquartered in Landover, Maryland,

is the fifteenth largest supermarket chain in the United States and one

of the nation's premier regional supermarket chains. Giant operates 179

supermarkets and three free-standing drug stores in Virginia, Maryland,

Delaware, New Jersey, Pennsylvania, and the District of Columbia. Giant

operates supermarkets under the ``Giant'' trade name in Maryland,

Virginia, and the District of Columbia, and supermarkets under the

``Super G'' trade name in Delaware, New Jersey, and Pennsylvania. Giant

had $4.23 billion in total sales for the fiscal year that ended on

February 28, 1998.

Ahold proposes to acquire all of the Class AC and Class AL voting

stock, and all of the outstanding Class A common stock of Giant, for

approximately $2.7 billion. 1224, formed in 1995 after the death of

Israel Cohen, the former Chairman and CEO of Giant, owns all of the

Class AC voting stock of Giant, which elects five of the nine board

seats. J Sainsbury, plc, a British firm that also owns the

Massachusetts-based Shaw's supermarket chain, owns the Class AL voting

shares, which elects four of the nine board seats. The Class A common

stock is publicly traded.

III. The Draft Complaint

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 foot 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. These

other stores 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 compliant, the relevant sections of the

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

acquisition are the areas in and near the following cities and towns:

(a) Bel Air, Maryland; (b) Eldersburg, Maryland; (c) Frederick,

Maryland; (d) Westminster, Maryland; (e) Hilltown, Pennsylvania; (f)

Norristown, Pennsylvania; (g) Warminster, Pennsylvania, and (h)

Yardley, Pennsylvania.

Ahold and Giant are actual and direct competitors in and near Bel

Air, Eldersburg, Frederick, Westminster, Norristown, Warminster, and

Yardley. Ahold is an actual potential competitor against Giant in and

near the Hilltown relevant market. But for the acquisition, Ahold and

Giant would become direct competitors in the Hilltown relevant market.

The acquisition will eliminate that competition.

According to the draft compliant, the Bel Air, Eldersburg,

Frederick, Westminster, Norristown, Warminster, and Yardley relevant

markets are highly concentrated, whether measured by the Herfindahl-

Hirshman 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. Ahold and Giant would have a

combined market share of near or greater than 35% in each geographic

market. The post-

[[Page 60349]]

acquisition HHIs in the geographic markets range from 3,008 to 6,716.

---------------------------------------------------------------------------

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

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

participants.

---------------------------------------------------------------------------

The draft complaint further alleges that the Hilltown relevant

market is also highly concentrated. The market will remain highly

concentrated as a result of this acquisition, and will be significantly

more concentrated than it would have been but for the acquisition.

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.

According to the draft compliant, Ahold's proposed acquisition of

the Class AC voting stock of Giant from 1224, and the Class A non-

voting common stock of Giant, if consummated, may substantially lessen

competition in the relevant markets in violation of Section 7 of the

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

Federal Trade Commission Act, as amended, 15 U.S.C. Sec. 45, by

eliminating direct competition between supermarkets owned or controlled

by Ahold and supermarkets owned or controlled by Giant, by eliminating

actual potential competition between supermarkets owned or controlled

by Ahold and supermarkets owned or controlled by Giant; by increasing

the likelihood that Ahold will unilaterally exercise market power; and

by increasing the likelihood of, or facilitating, collusion or

coordinated interaction among the remaining supermarkets 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.

IV. Terms of the Agreement Containing Consent Order (``the Proposed

Consent Order'')

The proposed consent order will remedy the Commission's competitive

concerns about the proposed acquisition. Under the terms of the

proposed consent order, the proposed Respondents must divest ten

specific supermarkets in the relevant markets. Four of the supermarkets

that the proposed Respondents must divest are currently owned and

operated by Ahold (all operating under the ``Martin's'' banner), and

six of the supermarkets are currently owned and operated by Giant (of

which one operates under the ``Giant'' banner and five operate under

the ``Super G'' banner). The proposed Respondents must divest: (1) the

Ahold ``Martin's'' in Bel Air, Maryland, to Fleming Companies, Inc.

(``Fleming''), the second largest supermarket wholesaler in the United

States and an operator of many company-owned supermarkets; (2) the two

Ahold ``Martin's'' supermarkets in Frederick, Maryland, to Frederick

County Foods LLC (``Frederick County Foods''), an independent operator

affiliated with Supervalu Inc. (``Supervalu''), (3) the Ahold

``Martin's'' supermarket in Westminster, Maryland, to Richfood

Holdings, Inc.'s (``Richfood'') Food-A-Rama division, a wholly-owned

subsidiary that operates Richfood's ``Metro'' supermarkets based in

Baltimore; (4) Giant's ``Giant'' supermarket in Eldersburg, Maryland,

to Safeway Inc. (``Safeway''), the second largest supermarket chain in

the United States and a major supermarket chain in Maryland; and (5)

five of Giant's ``Super G'' supermarkets in Pennsylvania to Supervalu,

the largest wholesaler to supermarkets and the thirteenth largest

retail operator of supermarkets in the United States. These

divestitures include every Ahold supermarket or every Giant supermarket

in each relevant market. Each upfront buyer owns no supermarkets in the

same market where it is acquiring one or more divested supermarkets

from the proposed Respondents. The specific supermarkets that the

proposed Respondents must divest to Fleming, Frederick County Foods,

Richfood, Safeway, and Supervalu are listed below.

The supermarket that the proposed Respondents must divest to

Fleming in accordance with the agreement between Ahold and Fleming

dated September 12, 1998, is the following:

1. Ahold store no. 114 operating under the ``Martin's Food Market''

trade name, located at 550 West McPhail Road, Bel Air, Maryland 21014

(Harford County).

The two supermarkets that the proposed Respondents must divest to

Frederick County Foods in accordance with the agreement between Ahold

and Frederick County Foods dated September 11, 1998, are the following:

1. Ahold store no. 40 operating under the ``Martin's Food Market''

trade name, located at 66 Waverly Drive in the Frederick Towne Mall

Shopping Center, Frederick, Maryland 21701 (Frederick County); and

2. Ahold store no. 96 operating under the ``Martin's Food Market''

trade name, located at 1305 West 7th Street in the Frederick Shopping

Center, Frederick, Maryland 21701 (Frederick County).

The supermarket that the proposed Respondents must divest to

Richfood in accordance with the agreement between Ahold and Richfood

dated September 14, 1998, is the following:

1. Ahold store no. 36 operating under the ``Martin's Food Market''

trade name, located at 551 Jermor Lane, Westminster, Maryland 21157

(Carroll County).

The supermarket that the proposed Respondents must divest to

Safeway in accordance with the agreement between Ahold and Safeway

dated September 12, 1998, is the following:

1. Giant store no. 238 operating under the ``Giant'' trade name,

located at 1313 Londontowne Boulevard in the Londontowne Square

Shopping Center, Eldersburg, Maryland 21784 (Carroll County).

The five supermarkets that the proposed Respondents must divest to

Supervalu in accordance with the agreement between Ahold and Supervalu

dated September 14, 1998, are the following:

1. Giant store no. 242 operating under the ``Super G'' trade name,

located at 1601 Big Oak Road in the Oxford Oaks Shopping Center, Lower

Makefield Township, Pennsylvania 19067 (Bucks County);

2. Giant store no. 249 operating under the ``Super G'' trade name,

located at 942 West Street Road in the Towne Square Shopping Center,

Warminster, Pennsylvania 18974 (Bucks County);

3. Giant store no. 237 operating under the ``Super G'' trade name,

located at 1591 Bethlehem Pike in the Hilltown Crossings Shopping

Center, Hilltown Township, Pennsylvania 19440 (Montgomery County);

4. Giant store no. 243 operating under the ``Super G'' trade name,

located at 2775 West Main Street in the Park-Ridge Shopping Center,

Lower Providence Township, Pennsylvania 19403 (Montgomery County); and

5. Giant store no. 250 operating under the ``Super G'' trade name,

located at 55 Germantown Pike in the Norriton Square Shopping Center,

East Norriton Township, Pennsylvania 19401 (Montgomery County).

The proposed consent order specifically requires that the

divestitures occur no later than twenty days after Ahold acquires the

Class AC voting stock from 1224 or four months after the proposed

Respondents signed the proposed consent order (September 18, 1998),

whichever is earlier.\2\ The proposed consent agreement also requires

Ahold to include rescission provisions in its upfront buyer agreements

that allow it to rescind the transaction(s) if the Commission, after

[[Page 60350]]

the comment period, decides to reject any of the upfront buyers. If

Ahold divests the supermarkets to be divested prior to the date the

proposed consent order becomes final, and if, at the time the

Commission decides to make the proposed consent order final, the

Commission notifies Ahold that any of the upfront buyers is not an

acceptable acquirer or that any of the upfront buyer agreements is not

an acceptable manner of divestiture, then Ahold must immediately

rescind the transaction in question and divest those assets within

three months after the proposed consent order becomes final. At that

time, Ahold must divest those assets only to an acquirer that receives

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

the prior approval of the Commission. In the event that any Commission-

approved buyer is unable to take or keep possession of any of the

supermarkets identified for divestiture, a trustee that the Commission

may appoint has the power to divest any of the supermarkets or

properties in the markets alleged in Paragraph 16 of the complaint that

the proposed Respondents own to remedy the anticompetitive effects

alleged in the complaint.

---------------------------------------------------------------------------

\2\ Acceptance of the proposed consent agreement for public

comment terminated the Hart-Scott-Rodino premerger waiting period

and enables Ahold to acquire the Giant stock immediately.

---------------------------------------------------------------------------

The Commission's goal in evaluating possible purchasers of divested

assets is to maintain the competitive environment that existed prior to

the acquisition. When divestiture is an appropriate remedy for 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 that divestiture to

these purchasers poses no separate competitive issues.

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

becomes final, the proposed Respondents are required to provide notice

to the Commission prior to acquiring supermarkets assets located in, or

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

supermarket located in, Carroll, Frederick, or Harford counties in

Maryland, or Bucks or Montgomery counties in Pennsylvania. Respondents

may not complete such an acquisition until they have provided

information requested by the Commission. This provision does not

restrict the proposed Respondents from constructing new supermarket

facilities on their own; nor does it restrict 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 Carroll,

Frederick, or Harford counties in Maryland, or Bucks or Montgomery

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

remove fixtures or equipment from a store or property owned or leased

in Carroll, Frederick, or Harford counties in Maryland, or Bucks or

Montgomery counties in Pennsylvania, that is no longer in operation as

a supermarket, except (1) Prior to a sale, sublease, assignment, or

change in occupancy or (2) to relocate such fixtures or equipment in

the ordinary course of business to any other supermarket owned or

operated by Ahold.

The proposed Respondents are required to provide to the Commission

a report of compliance with the proposed consent order within thirty

days following the date on which they signed the proposed consent,

every thirty days thereafter until the divestitures are completed, and

annually for a period of ten years. The obligations of 1224 under the

proposed consent order will terminate upon consummation of the proposed

acquisition.

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 Ahold acquires the Class AC voting stock of Giant from 1224 until

the divestitures have been completed, the proposed Respondents must

maintain the viability, competitiveness and marketability of the assets

to be divested, 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 1224 under the Asset Maintenance

Agreement will terminate upon consummation of the proposed acquisition.

VI. Opportunity for Public Comment

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

sixty 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 the proposed consent order final.

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 Fleming, Frederick County Foods, Richfood,

Safeway, and Supervalu, in order to aid the Commission in its

determination of whether to make the proposed consent order final. 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. 98-29846 Filed 11-6-98; 8:45 am]

BILLING CODE 6750-01-M