32374 Federal Register / Vol. 80, No. 109 / Monday, June 8, 2015 / Notices 

receivership for said institution. The 

FDIC was appointed receiver of Chipola 

Community Bank on April 19, 2013. 

The liquidation of the receivership 

assets has been completed. To the extent 

permitted by available funds and in 

accordance with law, the Receiver will 

be making a final dividend payment to 

proven creditors. 

Based upon the foregoing, the 

Receiver has determined that the 

continued existence of the receivership 

will serve no useful purpose. 

Consequently, notice is given that the 

receivership shall be terminated, to be 

effective no sooner than thirty days after 

the date of this Notice. If any person 

wishes to comment concerning the 

termination of the receivership, such 

comment must be made in writing and 

sent within thirty days of the date of 

this Notice to: Federal Deposit 

Insurance Corporation, Division of 

Resolutions and Receiverships, 

Attention: Receivership Oversight 

Department 34.6, 1601 Bryan Street, 

Dallas, TX 75201. 

No comments concerning the 

termination of this receivership will be 

considered which are not sent within 

this time frame. 

Dated: June 2, 2015. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 2015–13833 Filed 6–5–15; 8:45 am] 

BILLING CODE 6714–01–P 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

Notice to All Interested Parties of the 

Termination of the Receivership of 

10087, Security Bank of Houston 

County, Perry, Georgia 

Notice is hereby given that the Federal 

Deposit Insurance Corporation (‘‘FDIC’’) 

as Receiver for Security Bank of 

Houston County, Perry, Georgia (‘‘the 

Receiver’’) intends to terminate its 

receivership for said institution. The 

FDIC was appointed receiver of Security 

Bank of Houston County on July 24, 

2009. The liquidation of the 

receivership assets has been completed. 

To the extent permitted by available 

funds and in accordance with law, the 

Receiver will be making a final dividend 

payment to proven creditors. 

Based upon the foregoing, the 

Receiver has determined that the 

continued existence of the receivership 

will serve no useful purpose. 

Consequently, notice is given that the 

receivership shall be terminated, to be 

effective no sooner than thirty days after 

the date of this Notice. If any person 

wishes to comment concerning the 

termination of the receivership, such 

comment must be made in writing and 

sent within thirty days of the date of 

this Notice to: Federal Deposit 

Insurance Corporation, Division of 

Resolutions and Receiverships, 

Attention: Receivership Oversight 

Department 32.1, 1601 Bryan Street, 

Dallas, TX 75201. 

No comments concerning the 

termination of this receivership will be 

considered which are not sent within 

this time frame. 

Dated: June 2, 2015. 

Federal Deposit Insurance Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 2015–13802 Filed 6–5–15; 8:45 am] 

BILLING CODE 6714–01–P 

FEDERAL TRADE COMMISSION 

[File No. 141–0168] 

Reynolds American Inc. and Lorillard 

Inc.; Analysis of Proposed Consent 

Order 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 methods 

of competition. The attached Analysis to 

Aid Public Comment describes both the 

allegations in the draft complaint 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 June 25, 2015. 

ADDRESSES: Interested parties may file a 

comment at online or on paper, by 

following the instructions in the 

Request for Comment part of the 

SUPPLEMENTARY INFORMATION section 

below. Write ‘‘Reynolds American Inc. 

and Lorillard Inc.—Consent Agreement; 

File 141–0168’’ on your comment and 

file your comment online at https://

ftcpublic.commentworks.com/ftc/

reynoldslorillardconsent by following 

the instructions on the web-based form. 

If you prefer to file your comment on 

paper, write ‘‘Reynolds American Inc. 

and Lorillard Inc.—Consent Agreement; 

File 141–0168’’ on your comment and 

on the envelope, and mail your 

comment to the following address: 

Federal Trade Commission, Office of the 

Secretary, 600 Pennsylvania Avenue 

NW., Suite CC–5610 (Annex D), 

Washington, DC 20580, or deliver your 

comment to the following address: 

Federal Trade Commission, Office of the 

Secretary, Constitution Center, 400 7th 

Street SW., 5th Floor, Suite 5610 

(Annex D), Washington, DC 20024. 

FOR FURTHER INFORMATION CONTACT: 

Robert Tovsky, Bureau of Competition, 

(202–326–2634), 600 Pennsylvania 

Avenue NW., Washington, DC 20580. 

SUPPLEMENTARY INFORMATION: Pursuant 

to Section 6(f) of the Federal Trade 

Commission Act, 15 U.S.C. 46(f), and 

FTC Rule 2.34, 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 thirty (30) 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 May 26, 2015), on the 

World Wide Web, at http://www.ftc.gov/ 

os/actions.shtm. 

You can file a comment online or on 

paper. For the Commission to consider 

your comment, we must receive it on or 

before June 25, 2015. Write ‘‘Reynolds 

American Inc. and Lorillard Inc.— 

Consent Agreement; File 141–0168’’ on 

your comment. Your comment— 

including your name and your state— 

will be placed on the public record of 

this proceeding, including, to the extent 

practicable, on the public Commission 

Web site, at http://www.ftc.gov/os/

publiccomments.shtm. As a matter of 

discretion, the Commission tries to 

remove individuals’ home contact 

information from comments before 

placing them on the Commission Web 

site. 

Because your comment will be made 

public, you are solely responsible for 

making sure that your comment does 

not include any sensitive personal 

information, like anyone’s Social 

Security number, date of birth, driver’s 

license number or other state 

identification number or foreign country 

equivalent, passport number, financial 

account number, or credit or debit card 

number. You are also solely responsible 

for making sure that your comment does 

not include any sensitive health 

information, like medical records or 

other individually identifiable health 

information. In addition, do not include 

any ‘‘[t]rade secret or any commercial or 

financial information which . . . is 

privileged or confidential,’’ as discussed 

in Section 6(f) of the FTC Act, 15 U.S.C. 

46(f), and FTC Rule 4.10(a)(2), 16 CFR 

4.10(a)(2). In particular, do not include 

competitively sensitive information 

mstockstill on DSK4VPTVN1PROD with NOTICES

Federal Register / Vol. 80, No. 109 / Monday, June 8, 2015 / Notices 32375 

1 In particular, the written request for confidential 

treatment that accompanies the comment must 

include the factual and legal basis for the request, 

and must identify the specific portions of the 

comment to be withheld from the public record. See 

FTC Rule 4.9(c), 16 CFR 4.9(c). 

such as costs, sales statistics, 

inventories, formulas, patterns, devices, 

manufacturing processes, or customer 

names. 

If you want the Commission to give 

your comment confidential treatment, 

you must file it in paper form, with a 

request for confidential treatment, and 

you have to follow the procedure 

explained in FTC Rule 4.9(c), 16 CFR 

4.9(c).1 Your comment will be kept 

confidential only if the FTC General 

Counsel, in his or her sole discretion, 

grants your request in accordance with 

the law and the public interest. 

Postal mail addressed to the 

Commission is subject to delay due to 

heightened security screening. As a 

result, we encourage you to submit your 

comments online. To make sure that the 

Commission considers your online 

comment, you must file it at https://

ftcpublic.commentworks.com/ftc/

reynoldslorillardconsent by following 

the instructions on the web-based form. 

If this Notice appears at http://

www.regulations.gov/#!home, you also 

may file a comment through that Web 

site. 

If you file your comment on paper, 

write ‘‘Reynolds American Inc. and 

Lorillard Inc.—Consent Agreement; File 

141–0168’’ on your comment and on the 

envelope, and mail your comment to the 

following address: Federal Trade 

Commission, Office of the Secretary, 

600 Pennsylvania Avenue NW., Suite 

CC–5610 (Annex D), Washington, DC 

20580, or deliver your comment to the 

following address: Federal Trade 

Commission, Office of the Secretary, 

Constitution Center, 400 7th Street SW., 

5th Floor, Suite 5610 (Annex D), 

Washington, DC 20024. If possible, 

submit your paper comment to the 

Commission by courier or overnight 

service. 

Visit the Commission Web site at 

http://www.ftc.gov to read this Notice 

and the news release describing it. The 

FTC Act and other laws that the 

Commission administers permit the 

collection of public comments to 

consider and use in this proceeding as 

appropriate. The Commission will 

consider all timely and responsive 

public comments that it receives on or 

before June 25, 2015. For information on 

the Commission’s privacy policy, 

including routine uses permitted by the 

Privacy Act, see http://www.ftc.gov/ftc/ 

privacy.htm. 

Analysis of Agreement Containing 

Consent Order To Aid Public Comment 

The Federal Trade Commission 

(‘‘Commission’’) has accepted from 

Reynolds American Inc. (‘‘Reynolds’’) 

and Lorillard Inc. (‘‘Lorillard’’), subject 

to final approval, an Agreement 

Containing Consent Order (‘‘Consent 

Agreement’’) designed to remedy the 

anticompetitive effects resulting from 

Reynolds’s proposed acquisition of 

Lorillard. 

Reynolds’s July 2014 agreement to 

acquire Lorillard in a $27.4 billion 

transaction (‘‘the Acquisition’’) would 

combine the second- and third-largest 

cigarette producers in the United States. 

After the Acquisition, Reynolds and the 

largest U.S. cigarette producer, Altria 

Group, Inc. (‘‘Altria’’), would together 

control approximately 90% of all U.S. 

cigarette sales. The Commission’s 

Complaint alleges that the proposed 

Acquisition, if consummated, would 

violate 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, by substantially 

lessening competition in the market for 

traditional combustible cigarettes. 

Under the terms of the Consent 

Agreement, Reynolds must divest a 

substantial set of assets to Imperial 

Tobacco Group plc. (‘‘Imperial’’). These 

assets include four cigarette brands, 

Lorillard’s manufacturing facility and 

headquarters, and most of Lorillard’s 

current workforce. The Consent 

Agreement also requires Reynolds to 

provide Imperial with visible shelfspace at retail locations for a period of 

five months following the close of the 

transaction. This Consent Agreement 

provides Imperial’s U.S. operations with 

the nationally relevant brands, 

manufacturing facilities, and other 

tangible and intangible assets needed to 

effectively compete in the U.S. cigarette 

market. Reynolds must complete the 

divestiture on the same day it acquires 

Lorillard. 

The Consent Agreement has been 

placed on the public record for 30 days 

to solicit comments from interested 

persons. Comments received during this 

period will become part of the public 

record. After 30 days, the Commission 

will review the Consent Agreement, and 

comments received, to decide whether it 

should withdraw or modify the Consent 

Agreement, or make the Consent 

Agreement final. 

I. The Parties 

All parties to the proposed 

Acquisition and Consent Agreement are 

current competitors in the U.S. cigarette 

market. 

Reynolds has the second-largest 

cigarette manufacturing and sales 

business in the United States. Its brands 

include two of the best-selling cigarettes 

in the country: Camel and Pall Mall. It 

also manages a number of smaller 

cigarette brands that it promotes less 

heavily. These include Winston, Kool, 

and Salem. Reynolds primarily sells its 

cigarettes in the United States. 

Lorillard has the third-largest cigarette 

manufacturing and sales business in the 

United States. Its flagship brand, 

Newport, is the best-selling menthol 

cigarette in the country, and the secondbest-selling cigarette brand overall. In 

addition to recently introduced nonmenthol styles of Newport, Lorillard 

manufactures and sells a few smaller 

discount-segment brands, such as 

Maverick. Like Reynolds, Lorillard 

competes primarily in the United States. 

Imperial is an international tobacco 

company operating in many countries 

including Australia, France, Germany, 

Greece, Italy, Turkey, Taiwan, the 

United Kingdom, and the United States. 

It sells tobacco products in the U.S. 

through its Commonwealth-Altadis 

subsidiary. Imperial’s U.S. cigarette 

portfolio consists of several smaller 

discount brands, including USA Gold, 

Sonoma, and Montclair. 

II. The Relevant Market and Market 

Structure 

The relevant line of commerce in 

which to analyze the effects of the 

Acquisition is traditional combustible 

cigarettes (‘‘cigarettes’’). Consumers do 

not consider alternative tobacco 

products to be close substitutes for 

cigarettes. Cigarette producers similarly 

view cigarettes and other tobacco 

products as separate product categories, 

and cigarette prices are not significantly 

constrained by other tobacco products. 

The United States is the relevant 

geographic market in which to analyze 

the effects of the Acquisition on the 

cigarette market. Both Reynolds and 

Lorillard sell cigarettes primarily in this 

country. U.S. consumers are in practice 

limited to the set of current U.S. 

producers when seeking to buy 

cigarettes. 

The U.S. cigarette market has 

experienced declining demand since 

1981. Total shipments fell by 

approximately 3.2% in 2014, with 

similar annual declines expected in the 

future. The market includes three large 

producers—Altria, Reynolds, and 

Lorillard—who together account for 

roughly 90% of all cigarette sales. Two 

smaller producers—Liggett and 

Imperial—have roughly 3% market 

shares apiece. All other producers have 

individual market shares of 1% or less. 

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32376 Federal Register / Vol. 80, No. 109 / Monday, June 8, 2015 / Notices 

1This statement reflects the views of Chairwoman 

Ramirez, Commissioner Ohlhausen, and 

Commissioner McSweeny. 

2The only transaction before the Commission for 

purposes of Hart-Scott-Rodino review was the 

Reynolds-Lorillard transaction. 

Competition in the U.S. cigarette 

market involves brand positioning, 

customer loyalty management, product 

promotion, and retail presence. 

Cigarette advertising is severely 

restricted in the United States: Various 

forms of advertising and marketing are 

prohibited by law, by regulation, and by 

the terms of settlement agreements 

between major cigarette producers and 

the individual States. The predominant 

form of promotion remaining for U.S. 

cigarette producers is retail price 

reduction. 

III. Entry 

Entry or expansion in the U.S. 

cigarette market is unlikely to deter or 

counteract any anticompetitive effects of 

the proposed Acquisition. New entry in 

the cigarette market is difficult because 

of falling demand and the potentially 

slow and costly process of obtaining 

Food and Drug Administration 

clearance for new cigarette products. 

Expansion by new or existing cigarette 

producers is further obstructed by legal 

restrictions on advertising, limited retail 

product-visibility for fringe cigarette 

brands, and existing retail marketing 

contracts. 

IV. Effects of the Acquisition 

The proposed Acquisition is likely to 

substantially lessen competition in the 

U.S. cigarette market. It would eliminate 

current and emerging head-to-head 

competition between Reynolds and 

Lorillard, particularly for menthol 

cigarette sales, which is an increasingly 

important segment of the market. The 

Acquisition would also increase the 

likelihood that the merged firm will 

unilaterally exercise market power. 

Finally, the Acquisition will increase 

the likelihood of coordinated interaction 

between the remaining participants in 

the cigarette market. 

V. The Consent Agreement 

The purpose of the Consent 

Agreement is to mitigate the 

anticompetitive threat of the proposed 

acquisition. The Consent Agreement 

allows Reynolds to complete its 

acquisition of Lorillard, but requires 

Reynolds to divest several of its postacquisition assets to Imperial. 

Among other terms, the Consent 

Agreement requires Reynolds to sell 

Imperial four of its post-acquisition 

cigarette brands: Winton, Kool, Salem, 

and Maverick. These brands have a 

combined share of approximately 7% of 

the total U.S. cigarette market. Reynolds 

must also sell Lorillard’s manufacturing 

facility and headquarters to Imperial, 

give Imperial employment rights for 

most of Lorillard’s current staff and 

salesforce, and guarantee Imperial 

visible retail shelf-space for a period of 

five months following the close of the 

transaction. Finally, Reynolds must also 

provide Imperial with certain transition 

services. 

This divestiture package, including 

the nationally recognized Winston and 

Kool brands, provides Imperial an 

opportunity to rapidly increase its 

competitive significance in the U.S. 

market. Imperial will shift immediately 

from being a small regional producer 

with limited competitive influence on 

the larger firms to become a national 

competitor with the third-largest 

cigarette business in the market. While 

Imperial’s plans call for it to reposition 

the acquired brands, which have lost 

market share as part of the Reynolds 

portfolio, Imperial has successfully 

executed similar turnarounds with 

brands in other international markets. 

Imperial will have greater opportunity 

and incentive to promote and grow sales 

of the divested brands because, unlike 

Reynolds, incremental sales of these 

brands are unlikely to cannibalize sales 

from more profitable cigarette brands in 

its portfolio. Imperial’s incentive to 

reduce the price of the divestiture 

brands, in order to grow their market 

share, is a procompetitive offset to the 

reduction in competition that will result 

from the consolidation of Reynolds and 

Lorillard. Imperial’s incentive to reduce 

prices and promote products in new 

areas likewise reduces the threat of 

anticompetitive coordination following 

the merger—as coordination on price 

increases and other aspects of 

competition may be relatively difficult 

given Imperial’s contrary incentives. 

Ultimately, the divestiture package 

provides Imperial with a robust 

opportunity to undertake 

procompetitive actions to grow its 

market share in the U.S. cigarette 

market, and address the competitive 

concerns raised by the merger. 

IV. Opportunity for Public Comment 

By accepting the Consent Agreement, 

subject to final approval, the 

Commission anticipates that the 

competitive problems alleged in its 

Complaint will be resolved. The 

purpose of this analysis is to invite and 

facilitate public comment concerning 

the Consent Agreement to aid the 

Commission in determining whether it 

should make the Consent Agreement 

final. This analysis is not an official 

interpretation of the Consent 

Agreement, and does not modify its 

terms in any way. 

By direction of the Commission, 

Commissioners Brill and Wright dissenting. 

Donald S. Clark, 

Secretary. 

Statement of the Federal Trade 

Commission 

In the Matter of Reynolds American, Inc. 

and Lorillard Inc. 

The Federal Trade Commission has 

voted to accept for public comment a 

settlement with Reynolds American, 

Inc. (‘‘Reynolds’’) to resolve the likely 

anticompetitive effects of Reynolds’ 

proposed acquisition of Lorillard Inc. 

(‘‘Lorillard’’).1 The settlement will allow 

the acquisition to move forward, subject 

to large divestitures by the parties to 

another major competitor in the tobacco 

industry. 

The merging parties chose to present 

this acquisition to the Commission with 

a proposed divestiture aimed solely at 

securing our approval of the 

acquisition.2 As proposed, Reynolds 

will purchase Lorillard for $27.4 billion 

and then immediately divest certain 

assets from both Reynolds and Lorillard 

to Imperial Tobacco Group plc 

(‘‘Imperial’’) in a second $7.1 billion 

transaction. At the end of both 

transactions, Reynolds will own 

Lorillard’s Newport brand and Imperial 

will own three former Reynolds’ brands, 

Winston, Kool and Salem, as well as 

Lorillard’s Maverick and e-cigarette Blu 

brands, and Lorillard’s corporate 

infrastructure and manufacturing 

facility. 

As we explain below, we have reason 

to believe that Reynolds’ proposed 

acquisition of Lorillard is likely to 

substantially lessen competition in the 

market for combustible cigarettes in the 

United States. We conclude, however, 

that the parties’ proposed post-merger 

divestitures to Imperial would be 

effective in restoring competition in this 

market, and we therefore approve the 

divestitures as part of a consent order. 

I. Reynolds’ Acquisition of Lorillard Is 

Likely to Substantially Lessen 

Competition in the Combustible 

Cigarette Market 

Today, the market for combustible 

cigarettes in the United States contains 

three major players and several 

additional smaller competitors. Philip 

Morris USA, a division of Altria Group, 

Inc. (‘‘Altria’’), is the largest, with a 

share of about 51%, roughly twice the 

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Federal Register / Vol. 80, No. 109 / Monday, June 8, 2015 / Notices 32377 

3While our main concern is with the 

transaction’s likely unilateral effects, there is also 

evidence that the transaction would increase the 

likelihood of coordination by creating greater 

symmetry between Reynolds and Altria in terms of 

their market shares, portfolio of brands, and 

geographic strength in the United States. When the 

Commission last publicly evaluated this market in 

the context of the 2004 R.J. Reynolds Tobacco 

Holdings, Inc. (‘‘RJR’’)/British American Tobacco 

p.l.c. (‘‘BAT’’) transaction, we noted in our 

statement that conditions in the cigarette market at 

the time would make coordination difficult. The 

market has changed considerably over the last 

decade, perhaps most importantly in that the RJR/ 

BAT transaction left the market with three major 

players relying on complex, differentiated product 

placement and pricing strategies. Unlike the 

combination of Reynolds/Lorillard, which would 

leave only two symmetric players with major 

national brands competing directly, the RJR/BAT 

transaction and market environment in 2004 

presented a less pronounced coordination issue. 

4 Imperial entered the United States market 

through its acquisition of Commonwealth’s cigarette 

brands in April 2007. 

5After the divestitures to Imperial, Reynolds will 

have a 34% market share in the United States. 

6 Dissenting Statement of Commissioner Julie 

Brill at 6–7. 

7Although he agrees that the merger of Reynolds 

and Lorillard is likely to substantially lessen 

competition and that a consent order increases the 

likelihood that the divestitures to Imperial are 

properly and promptly effectuated, Commissioner 

Wright believes a consent order is unwarranted and 

on that basis dissents. We respectfully disagree with 

Commissioner Wright’s suggestion that our action is 

improper under these circumstances. Our obligation 

under the Hart-Scott-Rodino Act is to take 

appropriate steps to ensure that any competitive 

issues with a proposed transaction are addressed 

effectively and that is precisely what we have done 

here. Indeed, we believe that our responsibility 

would not be fully discharged if we did not guard 

against the risks that Commissioner Wright himself 

acknowledges exist in the absence of a consent 

order. 

size of its nearest competitor. Reynolds 

and Lorillard are the second- and thirdlargest firms, with shares of 

approximately 26% and 15%, 

respectively. Other players in the 

market include Liggett and Imperial, 

each with about 3% of the market, and 

roughly 50 other small players focused 

mainly on discount or regional business. 

In light of their size and relative 

positions in the market, if Reynolds and 

Lorillard were attempting their 

transaction without any divestitures, the 

acquisition would likely substantially 

lessen competition, with the postacquisition Reynolds controlling 41% of 

the market and Reynolds and Altria 

together holding 92% of the market. In 

particular, we have reason to believe 

that the transaction would eliminate 

competition between Reynolds’ Camel 

brand and Lorillard’s Newport brand. 

For example, we found evidence that 

Camel has been seeking to gain market 

share from Newport. There is also 

evidence of discounting by Newport in 

response to Camel. In addition, our 

econometric analysis showed likely 

price effects resulting from the 

combination of Camel and Newport.3

Having concluded that Reynolds’ 

acquisition of Lorillard is likely to result 

in anticompetitive effects, we explain 

next why we believe the parties’ 

proposed divestitures to Imperial are 

sufficient to restore competition. 

II. The Divestitures to Imperial Will 

Offset the Competition Lost From the 

Reynolds-Lorillard Merger 

Imperial is an international tobacco 

company with operations in 160 

countries and global revenues of 

roughly $11.8 billion. Today, Imperial is 

a relatively small player in the United 

States with a 3% share of the market.4

Through the divestitures, Imperial is 

purchasing a collection of assets from 

both Reynolds and Lorillard. In addition 

to buying several prominent brands 

from both companies, Imperial is 

receiving an intact American 

manufacturing and sales operation from 

Lorillard, including Lorillard’s offices, 

production facilities, and 2,900 

employees. Lorillard’s national sales 

force, which will be moving to Imperial, 

is an experienced team with knowledge 

of brands and customers. 

We believe that these divestitures to 

Imperial will address the competitive 

concerns arising out of the ReynoldsLorillard combination. Following the 

divestitures, Imperial will immediately 

become the third-largest cigarette maker 

in the country, with a 10% market 

share.5 Imperial has a clearly defined 

strategy for the United States, and it will 

have both the capability and incentives 

to become an effective U.S. competitor. 

Winston is the number two cigarette 

brand in the world and will be the main 

focus of Imperial’s strategy in the 

United States. Imperial’s consumer 

research strongly indicates that Winston 

could see increased brand recognition 

and acceptance in the United States. 

Imperial plans to reposition Winston as 

a premium-value brand and invest in 

the growth of the brand through added 

visibility and significant discounting. 

Imperial also plans to refocus and invest 

in Kool through discounting on a stateby-state basis. The evidence shows that 

Imperial can grow the market share of 

these brands through discounting and 

other promotional activity. 

In her dissent, Commissioner Brill 

questions Imperial’s ability to restore 

the competition lost due to the 

Reynolds-Lorillard transaction, noting 

that the Winston and Kool brands have 

been declining for years.6 In our view, 

however, Reynolds’ track record with 

these two brands is not indicative of 

their potential with Imperial. As 

Commissioner Brill acknowledges, 

Reynolds made a conscious decision to 

promote Camel and Pall Mall 

aggressively as growth brands, and to 

put limited marketing support behind 

Winston and Kool. Going forward, 

Imperial will have greater incentives to 

promote Winston and Kool than 

Reynolds did because, unlike Reynolds, 

Imperial does not risk cannibalizing 

other brands in its portfolio. Moreover, 

Imperial is also acquiring Lorillard’s 

Maverick, a value brand that competes 

well with Reynolds’ Pall Mall. 

Imperial has a successful record of 

repositioning cigarette brands in other 

jurisdictions and growing the market 

share of those brands. Although it has 

had a relatively small presence in this 

country, Imperial is acquiring an 

experienced, national sales force from 

Lorillard that will help it to grow the 

acquired brands and more effectively 

compete against Reynolds and Altria. 

Imperial has agreements in place with 

Reynolds to ensure continuity of supply 

of the acquired brands and to ensure 

their visibility at the point of sale. The 

agreements will enable Imperial to have 

immediate access to retail shelf space 

and give Imperial time to negotiate 

contracts with retailers. 

Following the divestitures, Imperial’s 

business in the United States will 

account for 24% of its worldwide 

tobacco net revenues, thus making it 

important for Imperial to succeed in the 

United States. The acquisition will 

enable Imperial to be a national 

competitor, give it a portfolio of brands 

across different price points, and make 

its business more important to retailers, 

thereby enabling it to obtain visible 

shelf space and build stronger retailer 

relationships. 

We are therefore satisfied that 

Imperial is positioned to be a 

sufficiently robust and aggressive 

competitor against a merged ReynoldsLorillard and Altria, and to offset the 

competitive concerns arising from 

Reynolds’ acquisition of Lorillard. 

Indeed, Imperial’s incentives will stand 

in contrast to those of the pre-merger 

Lorillard, which has not been a 

particularly aggressive competitor in 

this market, having instead been 

generally content to rely on Newport’s 

strong brand equity to drive most of its 

sales. We believe that Imperial will 

behave differently. 

For these reasons, we are allowing the 

merger of Reynolds and Lorillard to go 

forward and accepting a consent decree 

to ensure that the divestitures to 

Imperial occur on a timely and effective 

basis.7

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32378 Federal Register / Vol. 80, No. 109 / Monday, June 8, 2015 / Notices 

1Reynolds will also sell Lorillard’s e-cigarette Blu 

to Imperial; that sale is not part of the Commission’s 

proposed order. 

2Complaint, ¶ 8, In the Matter of Reynolds 

American Inc. and Lorillard Inc., File No. 141– 

0168, (May 26, 2015). 

3U.S. DEP’T OF JUSTICE & FED. TRADE 

COMM’N, HORIZONTAL MERGER GUIDELINES 

§ 7.1 (2010) [hereinafter Guidelines]. 

4 Id. 

5 Id. 

6As the majority notes, the relevant market is 

combustible cigarettes in the United States. 

Statement of the F.T.C., In the Matter of Reynolds 

American Inc. and Lorillard Inc., File No. 141– 

0168, May 26, 2015, at 1 [hereinafter Majority 

Statement]. 

7 Guidelines, supra note 3,. at § 7.2. 

8 In this context, it is worth noting that, in 2006, 

U.S. District Judge Kessler held Reynolds, Lorillard, 

Philip Morris, and a number of other cigarette 

manufacturers liable under the Racketeer 

Influenced and Corrupt Organizations Act (RICO). 

United States v. Philip Morris, 449 F. Supp 2d 1 

(D.D.C. 2006), aff’d 566 F.3d 1095 (D.C. Cir. 2009). 

In a lengthy decision containing over 4000 

paragraphs of findings of fact, the district court 

highlighted the coordinated nature of the 

defendants’ activities in furtherance of the 

racketeering scheme. The conduct involved was 

indirectly related to price, as the overarching 

purpose behind the scheme was to maximize the 

competing cigarette firms’ profits. The district court 

explained that ‘‘[t]he central shared objective of 

Defendants has been to maximize the profits of the 

cigarette company Defendants by acting in concert 

to preserve and enhance the market for cigarettes 

through an overarching scheme to defraud existing 

and potential smokers. . . .’’ (Philip Morris, 449 F. 

Supp 2d at 869). The court also found that ‘‘[t]here 

is overwhelming evidence demonstrating 

Defendants’ recognition that their economic 

interests would best be served by pursuing a united 

front on smoking and health issues and by a global 

coordination of their activities to protect and 

enhance their market positions in their respective 

countries.’’ (Id. at 119). I find this evidence 

troubling when viewed in conjunction with the 

evidence in this case showing the U.S. cigarette 

market’s vulnerability to coordinated interaction 

relating to prices. 

Dissenting Statement of Commissioner 

Julie Brill 

In the Matter of Reynolds American, Inc. 

and Lorillard Inc. 

A majority of the Commission has 

voted to accept a consent to resolve 

competitive concerns stemming from 

Reynolds American, Inc.’s $27.4 billion 

acquisition of Lorillard Tobacco 

Company, a transaction combining the 

second and third largest cigarette 

manufacturers in the United States. 

Under the terms of the consent, 

Reynolds will divest some of its weaker 

non-growth brands—Winston, Kool, and 

Salem—as well as Lorillard’s brand 

Maverick to Imperial Tobacco Group 

plc, a British firm that currently 

operates as Commonwealth here in the 

United States.1 The Commission will 

allow Reynolds to retain its sought-after 

growth brands, Camel and Pall Mall, as 

well as Lorillard’s flagship brand 

Newport. I respectfully dissent because 

I am not convinced that the remedy 

accepted by the Commission fully 

resolves the competitive concerns 

arising from this transaction. By 

accepting the parties’ proposed 

divestitures and allowing the merger to 

proceed, the Commission is betting on 

Imperial’s ability and incentive to 

compete vigorously with a set of weak 

and declining brands. For the reasons 

explained below, Imperial’s ability to do 

so is at best uncertain. I thus have 

reason to believe that Reynolds’ 

acquisition of Lorillard, even after the 

divestitures to Imperial, is likely to 

substantially lessen competition in the 

U.S. cigarette market. As a result of the 

Commission’s failure to take meaningful 

action against this merger, the 

remaining two major cigarette 

manufacturers—Altria/Philip Morris 

and Reynolds—will likely be able to 

impose higher cigarette prices on 

consumers. 

I have reason to believe this merger 

increases both the likelihood of 

coordinated interaction between the 

remaining participants in the cigarette 

market, and the likelihood that the 

merged firm will unilaterally exercise 

market power. While both theories are 

presented in the Commission’s 

Complaint,2 I describe below additional 

facts and evidence not included in the 

Complaint that I believe illustrate why 

the transaction remains anticompetitive, 

notwithstanding the divestitures to 

Imperial. 

Coordinated Effects 

Under a coordinated effects theory, as 

set forth in the 2010 Horizontal Merger 

Guidelines, the Commission is likely to 

challenge a merger if the following three 

conditions are met: ‘‘(1) The merger 

would significantly increase 

concentration and lead to a moderately 

or highly concentrated market; (2) that 

market shows signs of vulnerability to 

coordinated conduct [ ]; and (3) the 

[Commission has] a credible basis on 

which to conclude that the merger may 

enhance that vulnerability.’’ 3

Importantly, the Guidelines explain 

‘‘the risk that a merger will induce 

adverse coordinated effects may not be 

susceptible to quantification or detailed 

proof . . .’’.4 The Guidelines also 

instruct that ‘‘[p]ursuant to the Clayton 

Act’s incipiency standard, the Agencies 

may challenge mergers that in their 

judgment pose a real danger of harm 

through coordinated effects, even 

without specific evidence showing 

precisely how the coordination likely 

would take place.’’ 5

I have reason to believe that the facts 

in this case demonstrate a substantial 

risk of coordinated interaction because 

all three conditions for coordinated 

interaction spelled out in the Horizontal 

Merger Guidelines are satisfied. 

The first condition is easily satisfied. 

After the dust settles on the merger and 

divestitures, Reynolds and market 

leader Altria/Philip Morris will have 

over 80 percent of the U.S. market for 

traditional combustible cigarettes.6

The second condition is also easily 

satisfied. The Guidelines identify a 

number of market characteristics that 

are generally considered to make a 

market more vulnerable to 

coordination.7 These include (1) 

evidence of past express collusion 

affecting the relevant market; (2) firms’ 

ability to monitor rivals’ behavior and 

detect cheating with relative ease; (3) 

availability of rapid and effective forms 

of punishment for cheating; (4) 

difficulties associated with attempting 

to gain significant market share from 

aggressive price cutting; and (5) low 

elasticity of demand. The cigarette 

market has many of these 

characteristics. 

First, for the last decade, the cigarette 

market in the United States has been 

dominated by three firms—Reynolds, 

Lorillard, and Altria/Philip Morris— 

which together represent over 90 

percent of the market. Over the same 10- 

year period, these ‘‘Big Three’’ tobacco 

firms have made lock-step cigarette list 

price increases unrelated to any change 

in costs or market fundamentals.8

Second, there is a high degree of 

pricing transparency at the wholesale 

and retail levels in the cigarette market, 

giving cigarette manufacturers the 

ability to monitor each other’s prices 

and engage in disciplinary action 

necessary to maintain coordination. The 

major manufacturers all receive detailed 

wholesale volume information from 

firms collecting data. Reynolds and 

Lorillard also receive numerous analyst 

reports that track manufacturers’ pricing 

behavior and project whether the 

industry will enjoy a stable or aggressive 

competitive environment as a result. 

These conditions will allow the new 

‘‘Big Two’’ cigarette manufacturers to 

quickly detect volume shifts due to 

price cuts and other competitive 

activity, allowing them to monitor each 

other’s prices, detect cheating, and 

quickly discipline each other—or 

threaten to do so. Third, many U.S. 

smokers are addicted to tobacco, 

resulting in fairly inelastic market 

demand, and rendering successful 

coordination more profitable for 

industry members. As the Guidelines 

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9The Tobacco Master Settlement Agreement 

(‘‘MSA’’) was entered in November 1998, originally 

between the four largest U.S. tobacco companies— 

Philip Morris Inc., R.J. Reynolds, Brown & 

Williamson and Lorillard—the original 

participating manufacturers (‘‘OPMs’’), and the 

attorneys general of 46 states, the District of 

Columbia, Puerto Rico, Guam, the Virgin Islands, 

American Samoa, and the Northern Marianas. The 

MSA resolved over 40 lawsuits brought by the 

states against tobacco manufacturers to recover 

billions of dollars in costs incurred by the states to 

treat smoking related illnesses and to obtain other 

relief. The OPMs agreed (1) to make multi-billion 

dollar payments, annually and in perpetuity, to the 

states and (2) to significantly restrict the way they 

market and advertise their tobacco products, 

including a prohibition on the use of cartoons in 

cigarette advertising or any other method that 

targets youth. In exchange, the states agreed to 

release the OPMs, and any other tobacco company 

that became a signatory to the MSA, from past and 

future liability arising from the health care costs 

caused by smoking. All MSA states subsequently 

enacted legislation requiring non-participating 

manufacturers (‘‘NPMs’’) to make certain payments 

based on the number of cigarettes sold into the 

state. These payments are placed in an escrow 

account to ensure that funds are available to satisfy 

state claims against NPMs. Although all MSA states 

enacted this legislation, many NPMs were not 

making the required payments, or were exploiting 

a loophole by withdrawing their escrow deposits in 

a way that conflicted with the legislation’s intent. 

To address those issues, many states adopted 

additional legislation to provide enforcement tools 

to ensure that NPMs make the required escrow 

payments (‘‘complementary enforcement 

legislation’’), as well as legislation to close a 

loophole in the state escrow statutes by preventing 

NPMs from withdrawing escrow payments in a way 

that was never contemplated when those statutes 

were enacted (‘‘Allocable Share Legislation’’). 

10Regulations Restricting the Sale and 

Distribution of Cigarettes and Smokeless Tobacco to 

Protect Children and Adolescents, 75 FR 13225 

(March 19, 2010). 

11 21 U.S.C. 301 (2009). 

12See Statement of the F.T.C., In the Matter of ZF 

Friedrichshafen AG and TRW Automotive Holdings 

Corp., File No. 141–0235, May 8, 2015, available at 

https://www.ftc.gov/system/files/document/cases/

150515zffrn.pdf. See also Marc Ivaldi, et al., The 

Economics of Tacit Collusion 66 & 67, Final Report 

for DG Competition, European Commission (2003), 

available at http://ec.europa.eu/competition/

mergers/studies_reports/the_economics_of_tacit_

collusion_en.pdf. (‘‘By eliminating a competitor, a 

merger reduces the number of participants and 

thereby tends to facilitate collusion. This effect is 

likely to be the higher, the smaller the number of 

participants already left in the market.’’) (‘‘[I]t is 

easier to collude among equals, that is, among firms 

that have similar cost structures, similar production 

capacities, or offer similar ranges of products. This 

is a factor that is typically affected by a merger. 

Mergers that tend to restore symmetry can facilitate 

collusion.’’). 

13 Guidelines, supra note 3, at § 6. 

14Majority Statement, supra note 6, at 2. 

describe, coordination is more likely the 

more participants stand to gain from it. 

Apart from the market characteristics 

identified in the Guidelines that make a 

market more vulnerable to coordination, 

it is important to consider that the 

cigarette market in the United States has 

experienced an ongoing decline in 

volume for over 20 years. This creates 

pressure on manufacturers to increase 

prices to offset volume losses, 

potentially easing the difficulties 

associated with formation of 

coordinating arrangements by making 

price increases a focal strategy. 

In 2004, the Commission elected not 

to challenge the merger of Reynolds and 

Brown & Williamson in part because it 

found that the cigarette market was not 

vulnerable to coordinated interaction. 

However, three key market dynamics 

have changed since then. These three 

changes have limited the market 

significance of the discount fringe and 

its ability to constrain cigarette prices, 

and increased entry barriers—both of 

which make the market more vulnerable 

to coordination. First, Reynolds’ Every 

Day Low Price (EDLP) program, 

substantially modified in 2008 to 

reposition and grow Pall Mall as the 

EDLP brand, requires participating 

retailers to maintain Pall Mall as the 

lowest price brand sold in the store, 

creating an effective price floor that 

discount manufacturers are not allowed 

to undercut. Second, the vast majority of 

states that signed the Tobacco Master 

Settlement Agreement (‘‘MSA’’) have 

enacted Non-Participating Manufacturer 

Legislation and Allocable Share 

Legislation, further diminishing the 

impact of discount brands.9 Under this 

legislation, companies that do not 

participate in the MSA—typically the 

discount cigarette manufacturers—are 

required to pay an escrow fee to 

approximate the costs incurred by the 

participating cigarette companies, 

thereby eliminating much of the cost 

advantage that discounters had 

previously enjoyed. Third, the FDA’s 

2010 regulations,10 implementing the 

2009 Family Smoking Prevention and 

Tobacco Control Act,11 restrict tobacco 

advertising and promotion in the United 

States. Thus the 2010 FDA regulation 

limits the ability of new firms to enter 

the market, and limits the ability of 

existing fringe market participants to 

grow through aggressive advertising. 

The combined effect of these three, 

relatively new market dynamics has 

been a reduction in the competitive 

significance of the fringe discount brand 

manufacturers. Indeed, the number of 

discount brand manufacturers has fallen 

from over 100 in 2005, to around 50 

today, now representing just two 

percent of the market. 

The third and final condition 

identified in the Guidelines as leading 

the Commission to challenge a proposed 

merger based on a theory of 

coordination—that the Commission has 

a credible basis to conclude that the 

merger may enhance the market’s 

vulnerability to coordination—is also 

satisfied in this case. Prior to the 

transaction, a large percentage of 

Reynolds’ portfolio consisted of nongrowth brands (including Winston, 

Kool, and Salem), and overall Reynolds’ 

volumes were declining. In the years 

leading up to this transaction Reynolds 

also had a noticeable portfolio gap, as it 

lacked a strong premium menthol 

brand. Reynolds initiated new 

competition in the menthol segment 

with the introduction of Camel Crush 

and Camel Menthol, but Reynolds was 

still playing catch-up. Seeking to stop 

further volume loss to its competitors’ 

menthol brands—Lorillard’s Newport 

and Altria/Philip Morris’ Marlboro— 

Reynolds implemented a strategy of 

aggressive promotion of Camel and Pall 

Mall. The proposed merger eliminates 

many of Reynolds’ incentives to 

continue these strategies. With Newport 

added to its portfolio, Reynolds will no 

longer face a gap in menthol and will 

not be subject to the same level of 

volume losses. Post-transaction, there 

will be greater symmetry between 

Altria/Philip Morris and Reynolds, 

bringing Reynolds’ incentives into 

closer alignment with Altria/Philip 

Morris to place greater emphasis on 

profitability over market share growth. 

This increase in symmetry between 

Reynolds and Altria/Philip Morris thus 

enhances the market’s vulnerability to 

coordination.12

Unilateral Effects 

This transaction also raises concerns 

about unilateral anticompetitive effects, 

because it eliminates the growing headto-head competition between Reynolds 

and Lorillard. The Guidelines explain 

that ‘‘[t]he elimination of competition 

between two firms that results from 

their merger may alone constitute a 

substantial lessening of competition.’’ 13

As the majority explains, the 

Commission’s econometric modeling 

showed likely price effects from the 

combination of the parties’ cigarette 

portfolios.14

The econometric analysis supports 

the substantial qualitative evidence of 

unilateral anticompetitive effects. For 

years, Lorillard’s Newport brand has 

been able to rely on strong brand equity 

and brand loyalty to sustain its high 

market share and high prices for its 

menthol product line. As noted above, 

Reynolds, on the other hand, has been 

lagging behind Altria/Philip Morris and 

Lorillard in terms of profitability and 

pricing, with no comparably strong 

menthol product. As a result, in recent 

years Reynolds has been making efforts 

to challenge Newport’s established 

leadership position and increase its 

share in menthol through increased 

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15Camel Crush allows consumers to change the 

cigarette from non-menthol to menthol or from 

menthol to stronger menthol by crushing a menthol 

capsule inside the filter. 16United States v. E.I. du Pont de Nemours & Co., 

366 U.S. 316, 326 (1961). 17 Ford Motor Co. v. United States, 405 U.S. 562, 

573 (1972) (‘‘The relief in an antitrust case must be 

‘effective to redress the violations’ and ‘to restore 

competition.’ . . . Complete divestiture is 

particularly appropriate where asset or stock 

acquisitions violate the antitrust laws.’’). 

18See F.T.C. Frequently Asked Questions About 

Merger Consent Order Provisions, available at 

https://www.ftc.gov/tips-advice/competitionguidance/guide-antitrust-laws/mergers/merger-faq. 

(‘‘There have been instances in which the 

divestiture of one firm’s entire business in a 

relevant market was not sufficient to maintain or 

restore competition in that relevant market and thus 

was not an acceptable divestiture package. To 

assure effective relief, the Commission may thus 

order the inclusion of additional assets beyond 

those operating in the relevant market . . . In all 

cases, the objective is to effectuate a divestiture 

most likely to maintain or restore competition in 

the relevant market . . . At all times, the burden is 

on the parties to provide concrete and convincing 

evidence indicating that the asset package is 

sufficient to allow the proposed buyer to operate in 

a manner that maintains or restores competition in 

the relevant market.’’). 

19 Id. (‘‘Every order in a merger case has the same 

goal: To preserve fully the existing competition in 

the relevant market or markets . . . An acceptable 

divestiture package is one that maintains or restores 

competition in the relevant market . . .’’). See also 

Statement of the F.T.C.’s Bureau of Competition on 

Negotiating Merger Remedies, at 4, January 2012, 

available at https://www.ftc.gov/system/files/

attachments/negotiating-merger-remedies/mergerremediesstmt.pdf. (‘‘If the Commission concludes 

that a proposed settlement will remedy the merger’s 

anticompetitive effects, it will likely accept that 

settlement and not seek to prevent the proposed 

merger or unwind the consummated merger.’’). 

20 In 1996 Commonwealth acquired brands 

required by the Commission to be divested to 

resolve competitive concerns stemming from B.A.T. 

Industries p.l.c.’s $1 billion acquisition of The 

American Tobacco Company. B.A.T. Industries 

p.l.c., et al, 119 F.T.C. 532 (1995). 

21The majority interprets the evidence before us 

as showing that Reynolds emphasized Camel and 

Pall Mall but only put ‘‘limited marketing support 

behind Winston and Kool.’’ See Majority Statement, 

supra note 6, at 3. In contradistinction to the 

majority, I believe the evidence before us 

demonstrates that on numerous occasions Reynolds 

sought—valiantly but without success—to grow 

Winston and Kool, even while emphasizing Camel 

and Pall Mall. 

22Majority Statement, supra note 6, at 2. 

promotional activity. Reynolds also 

engaged in the first innovation in this 

industry in many years with the 

introduction of Camel Crush,15 which 

has generated strong sales growth for a 

new brand. Post-merger, with Newport 

in its hands, Reynolds will no longer 

need to innovate or increase its 

promotional activity to increase its 

share in menthol. 

* * * * * 

In sum, I have reason to believe that 

this merger poses a real danger of 

anticompetitive harm through 

coordinated effects and unilateral 

exercise of market power in the U.S. 

cigarette market. 

Adequacy of Divestitures To Imperial 

To Restore Competition 

As the Supreme Court has stated, 

restoring competition is the ‘‘key to the 

whole question of an antitrust 

remedy.’’ 16 Both Supreme Court 

precedent and Commission guidance 

makes clear that any remedy to a 

transaction found to be in violation of 

Section 7 of the Clayton Act must fully 

restore the competition lost from the 

transaction,17 and a remedy that restores 

only some of the competition lost does 

not suffice.18 Because Clayton Act 

merger enforcement is predictive, it is 

hard to define what will precisely fully 

restore lost competition in any given 

case. The agency has on occasion 

allowed for remedies that are not an 

exact replica of the pre-merger market, 

usually when there is evidence that the 

buyer can have a strong competitive 

impact with the divested assets. Yet the 

focus of the inquiry is always on 

whether the proposed divestitures are 

sufficient to maintain or restore 

competition in the relevant market that 

existed prior to the transaction.19

Under these well-grounded 

principles, I have serious concerns 

about whether the divestiture remedy in 

this case is sufficient to restore 

competition in the U.S. cigarette market. 

As a preliminary matter, it is worth 

noting that, post-transaction, Imperial 

will be less than one-third the size of 

the combined Reynolds/Lorillard, with 

a 10 percent market share compared to 

the combined Reynolds/Lorillard’s 34 

percent market share. Prior to the 

transaction, Reynolds and Lorillard 

were more comparable in size to each 

other—Reynolds with a 26 percent 

market share and Lorillard with a 15 

percent market share. And despite the 

divestitures, the HHI will increase 331 

points to 3,809. Moreover, there is 

nothing dynamic about the cigarette 

market by any measure that could 

plausibly make these measures less 

useful in analyzing the likelihood of the 

divestiture to fully restore the 

competition lost from this transaction. 

Beyond the resulting increased 

concentration, the question is whether 

Imperial can nonetheless maintain or 

restore competition in the market with 

the divested brands due to its own 

business acumen and incentives postdivestiture. I have reason to believe 

Imperial will not be up to the job. 

Indeed, I believe Imperial’s postdivestiture market share may overstate 

its competitive significance. Through 

this transaction, Reynolds will obtain 

the second largest selling brand in the 

country (Newport), and keep the third 

largest selling brand (Camel). Imperial, 

on the other hand, will continue to have 

no strong brands in its portfolio. 

Reynolds’ Winston, Kool, and Salem are 

declining and unsuccessful. Their 

combined market share has gone from 

approximately 14 percent in 2010 to 8 

percent in 2013 (a 6 percent decline), 

and they are still losing share. It is no 

surprise that Reynolds would want to 

unload these weak brands, and refuse to 

provide a meaningful divestiture 

package that would replace the 

competition lost through its merger with 

Lorillard. I am not convinced that 

Imperial will have any greater ability to 

grow these declining brands. Indeed, I 

have reason to believe that Winston, 

Kool, and Salem, as well as Maverick, 

will languish even further outside the 

hands of Reynolds and Lorillard. 

There is no doubt that Imperial hopes 

to make these brands successful and 

will make every attempt to do so. 

Imperial’s strong global financial 

position will help. The Commission 

cannot rely on hopes and aspirations 

alone, however. We must base our 

decision on facts and demonstrated 

performance in the market. And it is by 

this measure that Imperial, with the 

added weak brands from Reynolds, 

comes up short. Imperial has a poor 

track record of growing acquired brands 

in the U.S. Imperial entered the U.S. 

market in 2007 by acquiring 

Commonwealth.20 At that time Imperial 

also aspired to increase share. However, 

Imperial was not successful. 

Commonwealth’s market share has 

declined since it was acquired by 

Imperial, and stands at less than three 

percent today. While in FY 2014 

Imperial may have achieved modest 

growth with one of its other brands, 

USA Gold, that growth was only 

focused on limited geographic markets, 

and doesn’t give me confidence that 

Imperial can implement a national 

campaign growth strategy. Reynolds, 

with much greater experience in the 

U.S. market, made numerous efforts to 

reinvigorate Winston, Kool, and Salem, 

but failed.21 In light of Imperial’s much 

worse track record here in the U.S., I am 

unconvinced that it will have more luck 

in making its wishful plans a reality. 

The majority notes that, outside the 

United States, Winston is the number 

two cigarette brand, and Imperial plans 

to make Winston the main focus of its 

strategy in the United States posttransaction.22 But Winston’s 

dichotomous position—a strong brand 

outside the United States and a weak 

brand in the United States—has held for 

many years. And Reynolds’ multiple 

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23The majority places its bet on Imperial in part 

based on the transfer to Imperial of ‘‘an 

experienced, national sales force from Lorillard.’’ 

Majority Statement, supra note 6, at 2. I do not 

believe the transfer of some of Lorillard’s sales staff 

to Imperial will transform Imperial into a 

significant competitor in the U.S. market. 

Lorillard’s transferred sales staff will not be able to 

overcome the significant market dynamics 

described herein. Moreover, Lorillard’s sales staff 

likely will be unable to fundamentally transform 

Imperial’s lackluster competitive performance in 

the U.S. market because, as the majority itself 

acknowledges, ‘‘pre-merger Lorillard . . . has not 

been a particularly aggressive competitor in this 

market, having instead been generally content to 

rely on Newport’s strong brand equity to drive most 

of its sales.’’ Majority Statement, supra note 6, at 

3. 

24The majority relies on the fact that Imperial 

will have more favorable incentives as compared 

with those of the pre-merger Lorillard, since 

Lorillard was not a particularly aggressive 

competitor. Majority Statement, supra note 6, at 3. 

But that comparison does not capture the full 

picture of the competitive harm from this 

transaction. Reynolds, not Lorillard, was the firm 

injecting some competition into the market. And as 

described herein, once Reynolds adds Lorillard’s 

flagship Newport brand to its portfolio, Reynolds 

will have a portfolio of brands that is symmetrical 

to Altria/Philip Morris, resulting in a significant 

change in its incentives post-merger. In considering 

whether Imperial will fully restore the competition 

lost from this transaction, the majority seems to 

omit from its analysis Reynolds’ changed incentives 

post-merger, and the effect that these changed 

incentives will have to substantially lessen 

competition in the U.S. market. 

25See, e.g., Christine A. Varney & Jonathan J. 

Clark, Chicago and Georgetown: An Essay in Honor 

of Robert Pitofsky, 101 Geo. L.J. 1565 (2013); Bruce 

H. Kobayashi and Timothy J. Muris, Chicago, PostChicago, and Beyond: Time to Let Go of the 20th 

Century, 78 Antitrust L. J. 147 (2012); Alan Devlin 

and Michael Jacobs, Antitrust Error, 52 Wm. & Mary 

L. Rev. 75 (2010); Verizon Commc’ns, Inc. v. Law 

Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 

(2004); Frank H. Easterbrook, The Limits of 

Antitrust, 63 Tex. L. Rev. 1, 15–16 (1984). 

26 Id. 

27 John Kwoka, Mergers, Merger Control, and 

Remedies, A Retrospective Analysis of U.S. Policy, 

2015. 

efforts to reposition Winston in light of 

its strong global position have not had 

any effect on slowing the dramatic 

decline of Winston in the United States. 

Indeed, by placing Winston at the center 

of its U.S. strategy, Imperial is 

demonstrating the same tone-deafness to 

the unique dynamics of the U.S. market 

that has caused Imperial to lose market 

share since it entered the U.S. market in 

2007. 

My concerns about Imperial’s ability 

to succeed where Reynolds has failed is 

heightened by the fact that Imperial will 

have no ‘‘anchor’’ brand to gain traction 

with retailers, and as a result will have 

limited shelf space available to it. The 

divestitures of Maverick from Lorillard 

and Winston, Kool, and Salem from 

Reynolds effectively de-couple each 

divested brand from a strong anchor 

brand. These anchor brands—Newport 

and Camel, the second and third bestselling brands in the country—gave 

Maverick, Winston, Kool, and Salem 

increased shelf space and promotional 

spending, helping to drive the limited 

sales they had. Maverick in particular 

benefits from Newport’s brand success: 

Lorillard gives it a portion of Newport’s 

shelf space, and when Lorillard 

advertises Newport, it advertises 

Maverick too. In Imperial’s hands, the 

divested brands will not have the same 

shelf space or the benefit of strong 

advertising that comes with their anchor 

brands. I believe that the decoupling of 

the divested brands from Camel and 

Newport will serve to further exacerbate 

their decline. 

Recognizing Imperial’s shelf space 

disadvantage, the proposed Consent 

requires Reynolds to make some short 

term accommodations in an attempt to 

give Imperial a fighting chance in its 

effort to gain some shelf space in stores. 

First, the Consent envisions Reynolds 

entering into a Route to Market (‘‘RTM’’) 

agreement with Imperial, whereby 

Reynolds agrees to provide Imperial a 

portion of its post-acquisition retail 

shelf space for a period of five months 

following the close of the transaction. 

Imperial will pay Reynolds $7 million 

for this agreement. Under the terms of 

the RTM agreement, Reynolds commits 

for a period of five months to continue 

placing Winston, Kool, and Salem on 

retail fixtures according to historic 

business practices, and to assign 

Imperial a defined portion of Lorillard’s 

current retail shelf-space allotments to 

use as it sees fit. Second, Reynolds is 

also undertaking a 12-month 

commitment to remove provisions in 

new retail marketing contracts that 

would otherwise require some retailers 

to provide it shelf space in proportion 

to its national market share, where 

Reynolds national market share is 

higher than its local market share. The 

intent of this commitment is to increase 

Imperial’s ability to obtain shelf space at 

least proportional to its local market 

share in many retail outlets for a period 

of 12 months. 

I have reason to believe that these 

provisions are insufficient to make up 

for Imperial’s significant shelf space 

disadvantage. The five-month RTM 

Agreement and 12-month commitment 

pertaining to Reynolds’ allocation of 

shelf space according to its local market 

share are too short. While Imperial may 

be optimistic that it can establish 

sufficient shelf space in this limited 

time frame, nothing in the RTM 

Agreement and 12-month local market 

share commitment will alter retailers’ 

incentives to allocate their shelf space to 

popular products that sell well when 

those time periods expire. Even if 

Imperial offers better terms and uses 

former Lorillard salespeople who have 

preexisting relationships with retailers 

to push for greater shelf space, it likely 

will still be in retailers’ economic 

interest to allocate shelf space to the 

strong Reynolds and Altria/Philp Morris 

brands, not to Imperial’s collection of 

weak and declining brands.23 And at the 

end of Reynolds’ 12-month local market 

share commitment, Reynolds will be 

able to squeeze Imperial’s shelf space by 

requiring many retailers to provide it 

shelf space in proportion to its higherthan-local national market share. While 

Imperial may attempt to maintain its 

retail visibility by offering stores 

lucrative merchandising contracts, 

Reynolds and Altria/Philip Morris will 

no doubt counter those efforts with their 

own lucrative contracts. In the short 

run, arguably this may be beneficial for 

competition, but in the long run, 

Imperial’s market presence will 

diminish and the market will in all 

likelihood become a stable duopoly.24

Conclusion 

There is a great deal of discussion 

among academia, industry and other 

stakeholders about the negative impact 

on the market stemming from over 

enforcement of the antitrust laws.25

There is consensus that over 

enforcement, also known as ‘‘Type 1 

errors’’ or ‘‘false positives’’, can harm 

businesses and consumers by 

preventing what could otherwise be 

procompetitive conduct; many 

commentators believe Type 1 errors can 

also have a chilling effect on future 

procompetitive conduct.26 However, 

failing to bring antitrust enforcement 

actions can also cause significant harms 

to consumers. As has been recently 

demonstrated by an in-depth study of 

merger retrospectives, harm from under 

enforcement, also known as ‘‘Type 2 

errors’’ or ‘‘false negatives’’, can come in 

the form of significant price increases.27

The Commission has always been very 

careful not to take enforcement action 

that turns out not to be warranted, an 

approach I fully support. This 

Commission also normally pays close 

attention when we are presented with 

insufficient divestitures or other 

remedies, to avoid under enforcement 

errors that can cause significant harm to 

consumers. Unfortunately, the majority 

has failed to do so in this case. 

For all of these reasons, I respectfully 

dissent. 

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32382 Federal Register / Vol. 80, No. 109 / Monday, June 8, 2015 / Notices 

1See Statement of the Federal Trade Commission 

1, Reynolds American Inc., FTC File No. 141–0168 

(May 26, 2015). 

2Statement of the Federal Trade Commission, 

supra note 1, at 3. 

3Statement of the Federal Trade Commission, 

supra note 1, at 1. While I agree with the 

Commission’s ultimate conclusion that Reynolds’ 

proposed acquisition of Lorillard would 

substantially lessen competition, I do not agree with 

the Commission’s reasoning. In particular, I do not 

believe the assertion that higher concentration 

resulting from the transaction renders coordinated 

effects likely. Specifically, I have no reason to 

believe that the market is vulnerable to 

coordination or that there is a credible basis to 

conclude the combination of Reynolds and 

Lorillard would enhance that vulnerability. For 

further discussion of why, as a general matter, the 

Commission should not in my view rely upon 

increases in concentration to create a presumption 

of competitive harm or the likelihood of 

coordinated effects, see Statement of Commissioner 

Joshua D. Wright, Holcim Ltd., FTC File No. 141– 

0129 (May 8, 2015). 

4 I would find a likelihood that the Imperial 

portion of the transaction would be completed less 

than 50 percent to be a sufficient basis to challenge 

the three-way transaction or enter into a consent 

decree. 

Dissenting Statement of Commissioner 

Joshua D. Wright 

In the Matter of Reynolds American Inc. 

and Lorillard Inc. 

The Commission has voted to issue a 

Complaint and Decision & Order against 

Reynolds American Inc. (‘‘Reynolds’’) to 

remedy the allegedly anticompetitive 

effects of Reynolds’ proposed 

acquisition of Lorillard Inc. 

(‘‘Lorillard’’). I respectfully dissent 

because the evidence is insufficient to 

provide reason to believe the three-way 

transaction between Reynolds, Lorillard, 

and Imperial Tobacco Group, plc 

(‘‘Imperial’’) will substantially lessen 

competition for combustible cigarettes 

sold in the United States. In particular, 

I believe the Commission has not met its 

burden to show that an order is required 

to remedy any competitive harm arising 

from the original three-way transaction. 

This is because the Imperial transaction 

is both highly likely to occur and is 

sufficient to extinguish any competitive 

concerns arising from Reynolds’ 

proposed acquisition of Lorillard. This 

combination of facts necessarily implies 

the Commission should close the 

investigation of the three-way 

transaction before it and allow the 

parties to complete the proposed threeway transaction without imposing an 

order. 

In July 2014, Reynolds, Lorillard, and 

Imperial struck a deal where, as the 

Commission states, ‘‘Reynolds will own 

Lorillard’s Newport brand and Imperial 

will own three former Reynolds’ brands, 

Winston, Kool and Salem, as well as 

Lorillard’s Maverick and e-cigarette Blu 

brands, and Lorillard’s corporate 

infrastructure and manufacturing 

facility.’’ 1 Thus, this deal came to us as 

a three-way transaction. As a matter of 

principle, when the Commission is 

presented with a three (or more) way 

transaction, an order is unnecessary if 

the transaction—taken as a whole—does 

not give reason to believe competition 

will be substantially lessened. The fact 

that a component of a multi-part 

transaction is likely anticompetitive 

when analyzed in isolation does not 

imply that the transaction when 

examined as a whole is also likely to 

substantially lessen competition. 

When presented with a three-way 

transaction, the Commission should 

begin with the following question: If the 

three-way deal is completed, is there 

reason to believe competition will be 

substantially lessened? If there is reason 

to believe the three-way deal will 

substantially lessen competition, then 

the Commission should pursue the 

appropriate remedy, either through 

litigation or a consent decree. If the deal 

examined as a whole does not 

substantially lessen competition, the 

default approach should be to close the 

investigation. An exception to the 

default approach, and a corresponding 

remedy, may be appropriate if there is 

substantial evidence that the three-way 

deal will not be completed as proposed. 

In such a case, the Commission must 

ask: What is the likelihood of only a 

portion of the deal being completed 

while the other portion, which is 

responsible for ameliorating the 

competitive concerns, is not completed? 

In this case, this second inquiry 

amounts to an assessment of the 

likelihood that Reynolds’ proposed 

acquisition of Lorillard would be 

completed but the Imperial transaction 

would not be. 

I agree with the Commission majority 

that the first question should be 

answered in the negative because the 

proposed transfer of brands to Imperial 

makes it unlikely that there will be a 

substantial lessening of competition 

from either unilateral or coordinated 

effects.2 I also agree with the 

Commission majority that if Reynolds 

and Lorillard were attempting a 

transaction without the involvement of 

Imperial, the acquisition would likely 

substantially lessen competition.3 Thus, 

taken as a whole, I do not find the threeway transaction to be in violation of 

Section 7 of the Clayton Act. 

The next question to consider is 

whether there is any evidence that the 

Imperial portion of the transaction will 

not be completed absent an order. In 

theory, if the probability of the Imperial 

portion of the transaction coming to 

completion in a manner that ameliorates 

the competitive concerns arising from 

just the Reynolds-Lorillard portion of 

the transaction were sufficiently low, 

then one could argue the overall 

transaction is likely to substantially 

lessen competition. I have seen no 

evidence that, absent an order, Reynolds 

and Lorillard would not complete its 

transfer of assets and brands to Imperial. 

While there are no guarantees and the 

probability that the Imperial portion of 

the transaction will be completed is 

something less than 100 percent, I have 

no reason to believe it is close to or less 

than 50 percent.4

I fully accept that a consent and order 

will increase the likelihood that the 

Imperial portion of the transaction will 

be completed. Putting firms under order 

with threat of contempt tends to have 

that effect. I also accept the view that a 

consent and order may mitigate some, 

but perhaps not all, potential moral 

hazard issues regarding the transfer of 

assets and brands from ReynoldsLorillard to Imperial. Specifically, the 

concern is that, post-merger, ReynoldsLorillard would complete the Imperial 

portion of the transaction but more in 

form but not in function and artificially 

raise the cost for Imperial. Higher costs 

for Imperial, such as undue delays in 

obtaining critical assets, would certainly 

materially impact Imperial’s ability to 

compete effectively. Given this 

possibility, a consent and order, 

including the use a monitor, would 

make such behavior easier to detect, and 

consequently would provide some 

deterrence from these potential moral 

hazard issues. 

It is also true, however, that a monitor 

in numerous other circumstances would 

make anticompetitive behavior easier to 

detect and consequently deter that 

behavior from occurring in the first 

place. Based upon this reasoning, the 

Commission could try as a prophylactic 

effort to impose a monitor in all 

oligopoly markets in the United States. 

This would no doubt detect (and deter) 

much price fixing. Such a broad effort 

would be unprecedented, and of course, 

plainly unlawful. The Commission’s 

authority to impose a remedy in any 

context depends upon its finding a law 

violation. Here, because the parties 

originally presented the three-way 

transaction to ameliorate competitive 

concerns about a Reynolds-Lorillardonly deal, and they did so successfully, 

there is no reason to believe the threeway transaction will substantially lessen 

competition; therefore, there is no legal 

wrongdoing to remedy. 

The Commission understandably 

would like to hold the parties to a 

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Federal Register / Vol. 80, No. 109 / Monday, June 8, 2015 / Notices 32383 

5The Commission points to the HSR Act as 

providing the legal basis for the FTC to enter into 

consent orders ‘‘to ensure that any competitive 

issues with a proposed transaction are addressed 

effectively.’’ Statement of the Federal Trade 

Commission, supra note 1, at 4 n.7. When a 

proposed transaction or set of transactions would 

not substantially lessen competition, as is the case 

with the three way transaction originally proposed 

here, there are no competitive issues with the 

proposed transaction to be addressed, and the belief 

that a consent order may even further mitigate 

concerns regarding the transfer of assets is not 

material to our analysis under the Clayton Act. The 

HSR Act is not in conflict with the Clayton Act and 

does not change this result. 

consent order that requires them to 

make the deal along with a handful of 

other changes. But that is not our role. 

There is no legal authority for the 

proposition that the Commission can 

prophylactically impose remedies 

without an underlying violation of the 

antitrust laws. And there is no legal 

authority to support the view that the 

Commission can isolate selected 

components of a three-way transaction 

to find such a violation. In the absence 

of such authority, the appropriate 

course is to evaluate the three-way 

transaction presented to the agency as a 

whole. Because I conclude, as 

apparently does the Commission, that 

the three-way transaction does not 

substantially lessen competition, there 

is no competitive harm to correct and 

any remedy is unnecessary and 

unwarranted.5 Entering into consents is 

appropriate only when the transaction 

at issue—in this case the three-way 

transaction—is likely to substantially 

lessen competition. This one does not. 

[FR Doc. 2015–13861 Filed 6–5–15; 8:45 am] 

BILLING CODE 6750–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Disease Control and 

Prevention 

[60Day–15–0856; Docket No. CDC–2015– 

0041] 

Proposed Data Collection Submitted 

for Public Comment and 

Recommendations 

AGENCY: Centers for Disease Control and 

Prevention (CDC), Department of Health 

and Human Services (HHS). 

ACTION: Notice with comment period. 

SUMMARY: The Centers for Disease 

Control and Prevention (CDC), as part of 

its continuing efforts to reduce public 

burden and maximize the utility of 

government information, invites the 

general public and other Federal 

agencies to take this opportunity to 

comment on proposed and/or 

continuing information collections, as 

required by the Paperwork Reduction 

Act of 1995. This notice invites 

comment on the proposed revision of 

the National Quitline Data Warehouse 

(NQDW) information collection. The 

NQDW is a repository of information 

about callers who have received services 

from state quitlines and a quarterly 

summary of services provided by each 

quitline. 

DATES: Written comments must be 

received on or before August 7, 2015. 

ADDRESSES: You may submit comments, 

identified by Docket No. CDC–2015– 

0041 by any of the following methods: 

Federal eRulemaking Portal: 

Regulation.gov. Follow the instructions 

for submitting comments. 

Mail: Leroy A. Richardson, 

Information Collection Review Office, 

Centers for Disease Control and 

Prevention, 1600 Clifton Road NE., MS– 

D74, Atlanta, Georgia 30329. 

Instructions: All submissions received 

must include the agency name and 

Docket Number. All relevant comments 

received will be posted without change 

to Regulations.gov, including any 

personal information provided. For 

access to the docket to read background 

documents or comments received, go to 

Regulations.gov. 

Please note: All public comment should be 

submitted through the Federal eRulemaking 

portal (Regulations.gov) or by U.S. mail to the 

address listed above. 

FOR FURTHER INFORMATION CONTACT: To 

request more information on the 

proposed project or to obtain a copy of 

the information collection plan and 

instruments, contact the Information 

Collection Review Office, Centers for 

Disease Control and Prevention, 1600 

Clifton Road NE., MS–D74, Atlanta, 

Georgia 30329; phone: 404–639–7570; 

Email: omb@cdc.gov. 

SUPPLEMENTARY INFORMATION: Under the 

Paperwork Reduction Act of 1995 (PRA) 

(44 U.S.C. 3501–3520), Federal agencies 

must obtain approval from the Office of 

Management and Budget (OMB) for each 

collection of information they conduct 

or sponsor. In addition, the PRA also 

requires Federal agencies to provide a 

60-day notice in the Federal Register 

concerning each proposed collection of 

information, including each new 

proposed collection, each proposed 

extension of existing collection of 

information, and each reinstatement of 

previously approved information 

collection before submitting the 

collection to OMB for approval. To 

comply with this requirement, we are 

publishing this notice of a proposed 

data collection as described below. 

Comments are invited on: (a) Whether 

the proposed collection of information 

is necessary for the proper performance 

of the functions of the agency, including 

whether the information shall have 

practical utility; (b) the accuracy of the 

agency’s estimate of the burden of the 

proposed collection of information; (c) 

ways to enhance the quality, utility, and 

clarity of the information to be 

collected; (d) ways to minimize the 

burden of the collection of information 

on respondents, including through the 

use of automated collection techniques 

or other forms of information 

technology; and (e) estimates of capital 

or start-up costs and costs of operation, 

maintenance, and purchase of services 

to provide information. Burden means 

the total time, effort, or financial 

resources expended by persons to 

generate, maintain, retain, disclose or 

provide information to or for a Federal 

agency. This includes the time needed 

to review instructions; to develop, 

acquire, install and utilize technology 

and systems for the purpose of 

collecting, validating and verifying 

information, processing and 

maintaining information, and disclosing 

and providing information; to train 

personnel and to be able to respond to 

a collection of information, to search 

data sources, to complete and review 

the collection of information; and to 

transmit or otherwise disclose the 

information. 

Proposed Project 

National Quitline Data Warehouse 

(NQDW) (OMB No. 0920–0856, exp. 10/ 

31/2015)—Revision—National Center 

for Chronic Disease and Health 

Promotion (NCCDPHP), Centers for 

Disease Control and Prevention (CDC). 

Background and Brief Description 

Despite the high level of public 

knowledge about the adverse effects of 

smoking, tobacco use remains the 

leading preventable cause of disease and 

death in the United States. Smoking 

results in approximately 480,000 deaths 

annually (USDHHS, 2014). This total 

includes approximately 41,000 annual 

deaths in nonsmoking U.S. adults 

caused by secondhand smoke exposure 

(USDHHS, 2014). Although the 

prevalence of current smoking among 

adults has been decreasing, substantial 

disparities in smoking prevalence 

continue to exist among individuals of 

low socioeconomic status, persons with 

mental health and substance abuse 

conditions, and certain racial/ethnic 

populations, among other groups. 

Quitlines are telephone-based tobacco 

cessation services that help tobacco 

users quit through a variety of services, 

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