[Federal Register Volume 70, Number 193 (Thursday, October 6, 2005)]
[Notices]
[Pages 58411-58414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-20043]


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FEDERAL TRADE COMMISSION

[File No. 051 0115]


The Procter & Gamble Company and The Gillette Company; Analysis 
of Agreement Containing Consent Orders to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint 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 October 29, 2005.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Procter & Gamble, et al., File No. 051 
0115,'' to facilitate the organization of comments. A comment filed in 
paper form should include this reference both in the text and on the 
envelope, and should be mailed or delivered to the following address: 
Federal Trade Commission/Office of the Secretary, Room 159-H, 600 
Pennsylvania Avenue, NW., Washington, DC 20580. Comments containing 
confidential material must be filed in paper form, must be clearly 
labeled ``Confidential,'' and must comply with Commission Rule 4.9(c). 
16 CFR 4.9(c) (2005).\1\ The FTC is requesting that any comment filed 
in paper form be sent by courier or overnight service, if possible, 
because U.S. postal mail in the Washington area and at the Commission 
is subject to delay due to heightened security precautions. Comments 
that do not contain any nonpublic information may instead be filed in 
electronic form as part of or as an attachment to email messages 
directed to the following email box: <a href="/cdn-cgi/l/email-protection#6c0f03021f0902180d0b1e0909010902182c0a180f420b031a"><span class="__cf_email__" data-cfemail="53303c3d20363d2732342136363e363d27133527307d343c25">[email protected]</span></a>.
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at http://www.ftc.gov. As a matter of discretion, the FTC 
makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments on 
the FTC Web site. More information, including routine uses permitted by 
the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Norman Armstrong, Jr., Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2072.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission 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 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 September 30, 2005), on the World Wide Web, at http://www.ftc.gov/os/2005/09/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either

[[Page 58412]]

paper or electronic form. All comments should be filed as prescribed in 
the ADDRESSES section above, and must be received on or before the date 
specified in the DATES section.

Analysis of Agreement Containing Consent Order to Aid Public Comment

I. Introduction

    The Procter & Gamble Company (``P&G'') and The Gillette Company 
(``Gillette'') are both leading suppliers of consumer products 
worldwide. P&G proposes to acquire Gillette. The Federal Trade 
Commission (``Commission'') has accepted, subject to final approval, an 
Agreement Containing Consent Orders (``Consent Agreement'') from P&G 
and Gillette. The purpose of the Consent Agreement is to remedy the 
anticompetitive effects that would otherwise result from P&G's proposed 
acquisition. Under the terms of the Consent Agreement, the parties will 
be required to divest: (1) Gillette's Rembrandt[reg] at-home teeth 
whitening business; (2) P&G's Crest[reg] SpinBrush\TM\ battery-powered 
and rechargeable toothbrush business; and (3) Gillette's Right 
Guard[reg] men's antiperspirant/deodorant (``AP/DO'') business. In 
addition, P&G is required to amend its joint venture agreement with 
Philips Oral Healthcare, Inc. (``Philips'') regarding the Crest[reg] 
Sonicare[reg] IntelliClean System (``IntelliClean'') rechargeable 
toothbrush.
    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days to solicit comments from interested people. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
proposed Consent Agreement and the comments received, and will decide 
whether it should withdraw from the proposed Consent Agreement or make 
it final.
    Pursuant to an Agreement and Plan of Merger dated January 27, 2005, 
P&G proposes to acquire 100 percent of the voting securities of 
Gillette in a transaction valued at approximately $57 billion 
(``Proposed Acquisition''). 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 lessening 
competition in the United States markets for the research, development, 
manufacture, distribution, and sale of at-home teeth whitening 
products, adult battery-powered toothbrushes, rechargeable 
toothbrushes, and men's AP/DOs.
    Consistent with the well-established approach to merger analysis, 
we have determined the appropriate product markets in which to analyze 
the likely competitive effects of the proposed merger. Staff initially 
examined whether the combination of the two companies' broad array of 
consumer products would be likely to have anticompetitive effects, 
including not only increased prices in the short term but also the 
creation of entry barriers that could affect price and innovation in 
the long term. In particular, staff investigated whether the combined 
entity would have an increased ability to exploit its position as a so-
called ``category manager'' or ``category captain,'' in order to obtain 
premium retailer shelf space and potentially exclude or disadvantage 
competitors in various broad categories, like oral care or AP/DO.
    The investigation has disclosed, however, that most retailers do 
not look at broad categories, like oral care and AP/DO, when they 
decide which products to stock and sell. They generally make decisions 
on individual products (e.g., men's AP/DO), that are perceived to be 
close substitutes within these broad categories. One supplier may be 
preferred for an individual product even though another supplier is 
preferred for other products in the broad category. Moreover, most 
retailers are likely to employ different category captains to assist 
them on a product-by-product basis within the broad categories. We have 
therefore concluded that the loss of competition between the merging 
parties in broad categories is unlikely to cause competitive harm. We 
have instead focused on individual products within the broad 
categories. These individual product markets include at-home teeth 
whitening, battery-powered toothbrushes, and men's AP/DO. The 
Commission has sought and obtained relief in these relevant markets.

II. The Parties

    Headquartered in Cincinnati, Ohio, P&G is one of the largest and 
most diversified suppliers of consumer products in the world. In 2004, 
P&G had worldwide net sales of approximately $51.4 billion. With its 
Crest[supreg] line of products, P&G is one of the leading suppliers of 
oral care products in the United States. The Crest family of products 
includes the Crest[supreg] Whitestrips<SUP>TM</SUP> and Crest[supreg] 
Night Effects<SUP>TM</SUP> lines of at-home teeth whitening products 
and the Crest[supreg] SpinBrush<SUP>TM</SUP> line of battery-powered 
toothbrushes. P&G is also a leading supplier of men's AP/DOs under its 
Old Spice[reg] brand.
    Gillette, based in Boston, Massachusetts, is also one of the 
world's leading suppliers of consumer products. Gillette had total 
worldwide net sales of approximately $10.5 billion in its 2004 fiscal 
year. Like P&G, Gillette is one of the leading suppliers of oral care 
products in the United States with its Oral-B[reg] and Oral-B[reg] 
Braun[reg] line of manual, battery-powered, and rechargeable 
toothbrushes, and its Oral-B[reg] Rembrandt[reg] and Rembrandt[reg] 
line of at-home teeth whitening products. Gillette is also a leading 
supplier of men's AP/DOs under its Right Guard[reg] and Gillette[reg] 
Series brands.

III. At-Home Teeth Whitening Products

    One of the relevant markets in which to assess the competitive 
effects of the Proposed Acquisition is the United States market for at-
home teeth whitening products. At-home teeth whitening products whiten 
teeth by bleaching them with either hydrogen or carbamide peroxide. 
These products are typically sold over-the-counter through food, drug, 
club, and mass merchandise channels and are marketed to be used by the 
consumer at home. There are several different types of at-home teeth 
whitening products, including strips, gels, pens and sticks, although 
strip and gel products account for the vast majority of sales of at-
home teeth whitening products in the United States.
    The United States market for at-home teeth whitening products is 
highly concentrated, with P&G and Gillette as the two largest suppliers 
in this market and the only two significant suppliers of branded 
strips. P&G is the market leader with its Crest Whitestrips[supreg] and 
Crest Night Effects[supreg] products, while Gillette is the second 
leading supplier with its Oral-B[supreg] Rembrandt[supreg] and 
Rembrandt[supreg] products. Together, the parties account for over 80% 
of the sales in this market.
    The Proposed Acquisition would significantly increase concentration 
in the United States market for at-home teeth whitening products, 
leaving P&G as the dominant supplier. By eliminating competition 
between the two leading suppliers, the Proposed Acquisition would 
likely result in higher prices, reduced innovation, and fewer product 
choices for consumers in this market.

IV. Adult Battery-Powered Toothbrushes

    A second relevant product market in which to assess the competitive 
effects of the Proposed Acquisition is the United States market for 
adult battery-powered toothbrushes. Adult battery-

[[Page 58413]]

powered toothbrushes are usually powered by AA or AAA batteries and 
either have oscillating or pulsating brush heads. The majority of adult 
battery-powered toothbrushes are sold at retail for between $5 and $8, 
and the batteries and brush heads can be replaced on some, but not all, 
products. Adult battery-powered toothbrushes are typically marketed as 
upgrades over manual toothbrushes and are more affordable than 
sophisticated rechargeable toothbrushes.
    The United States market for adult battery-powered toothbrushes is 
highly concentrated. P&G and Gillette are the two largest suppliers in 
this market. P&G markets its adult battery-powered products under the 
Crest[supreg] SpinBrush<SUP>TM</SUP> brand name, while Gillette sells 
its adult battery-powered products under the Oral-B[supreg] brand name. 
Gillette also dominates the adult high-priced manual and low-priced 
rechargeable toothbrush segments, which are the segments most likely to 
capture any switching away from adult battery-powered toothbrushes in 
the face of a price increase. Together, the parties account for over 
85% of the sales in the United States adult battery-powered toothbrush 
market.
    The Proposed Acquisition would significantly increase concentration 
in the United States market for adult battery-powered toothbrush 
products, leaving P&G as the dominant supplier. By eliminating 
competition between the two leading suppliers, the Proposed Acquisition 
would likely result in higher prices, reduced innovation, and fewer 
product choices for consumers in this market.

V. Rechargeable Toothbrushes

    A third relevant product market in which to assess the competitive 
effects of the Proposed Acquisition is the United States market for 
rechargeable toothbrushes. Rechargeable toothbrushes contain a 
rechargeable battery that powers high-speed oscillating, pulsating, or 
vibrating brush heads. They have a separate recharging unit that plugs 
into an electrical outlet to recharge the battery contained in the 
toothbrush. Brush heads for these products are almost always 
replaceable. Rechargeable toothbrushes typically are sold at retail for 
between $20 and $150, and are marketed as the premium brushing option 
for consumers.
    The United States market for rechargeable toothbrushes is highly 
concentrated with only two suppliers, Gillette and Philips, accounting 
for virtually all of the sales of these products. Gillette markets a 
full line of rechargeable toothbrush products under the Oral-B[supreg] 
Braun[supreg] brand name, while Philips sells mostly mid-to high-end 
products under the Philips[supreg] Sonicare[supreg] brand name. Philips 
and P&G also have a joint venture to co-develop and co-market the 
IntelliClean product, the first integrated toothbrush/dentifrice 
product (i.e., toothbrush that self dispenses toothpaste) sold in the 
United States. As a result, the Proposed Acquisition would allow P&G to 
acquire the only significant competitor to its joint venture partner, 
Philips, thereby reducing P&G's incentives to support the IntelliClean 
product. The agreement between Philips and P&G also contains non-
compete provisions that, if the Proposed Acquisition were consummated, 
could harm consumers.
    The Proposed Acquisition would eliminate P&G's incentive to fully 
support and promote the IntelliClean product and create a situation 
where the only two suppliers in the market are subject to non-compete 
provisions. Accordingly, the Proposed Acquisition would likely result 
in higher prices, reduced innovation, and fewer product choices for 
consumers in this market.

VI. Men's AP/DOs

    A fourth relevant product market in which to assess the competitive 
effects of the Proposed Acquisition is the United States market for 
men's AP/DOs. An antiperspirant is a substance that is used to prevent 
or reduce underarm sweating. A deodorant is a substance that is used to 
suppress underarm odor. These ingredients are typically combined 
together for complete underarm protection. AP/DOs are typically gender-
specific and sold in various forms, including roll-ons, traditional 
solids, invisible solids, gels, and aerosols. Men's AP/DOs are unique 
in, among other things, their packaging, fragrances, marketing, 
formulations, and location on the shelf.
    The United States market for men's AP/DOs is highly concentrated. 
P&G and Gillette are the two largest suppliers of men's AP/DOs in the 
United States. P&G markets its men's AP/DOs under the Old Spice[supreg] 
brand name, while Gillette sells its products under the Right 
Guard[supreg] and Gillette Series' brand names. Combined, the 
Respondents account for well over 50% of the sales in this highly 
concentrated market.
    Accordingly, the Proposed Acquisition would significantly increase 
concentration in the United States market for men's AP/DOs, leaving P&G 
as the dominant supplier. By eliminating competition between the two 
leading suppliers, the Proposed Acquisition would likely result in 
higher prices and fewer product choices for consumers in this market.

VII. Entry

    Entry into the United States at-home teeth whitening, adult 
battery-powered toothbrush, rechargeable toothbrush, and men's AP/DO 
markets is unlikely to deter or counteract the anticompetitive effects 
of the Proposed Acquisition. Entry into these markets is difficult and 
time-consuming and would require the investment of extremely high sunk 
costs to, among other things, develop products, provide advertising and 
promotional funding, establish a strong brand name, and create a 
distribution network. A new entrant also faces the difficult task of 
convincing retailers to carry their products.

VIII. The Consent Agreement

    The Consent Agreement effectively remedies the Proposed 
Acquisition's anticompetitive effects in the relevant markets discussed 
above. The Consent Agreement preserves competition in these markets by 
requiring the divestiture of: (1) The Rembrandt at-home teeth whitening 
business to a Commission-approved acquirer; (2) the Crest SpinBrush 
battery-powered business to Church & Dwight Company, Inc. (``Church & 
Dwight''); and (3) the Right Guard business to a Commission-approved 
acquirer.\2\ In addition, the Consent Agreement requires P&G to amend 
its joint venture agreement to allow Philips to independently market 
and sell the IntelliClean product.
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    \2\ The Rembrandt business that will be divested includes all of 
Gillette's existing and future teeth whitening products. For 
viability reasons, the purchaser of the Right Guard business will 
have the option of acquiring certain manufacturing assets and/or 
Gillette's Soft & Dri[reg] and Dry Idea[reg] assets.
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    The divestiture of the Rembrandt business must take place within 
three (3) months and the Right Guard business within four (4) months 
after the date the order becomes final. The Commission's goal in 
evaluating possible purchasers of divested assets is to ensure that the 
competitive environment that existed prior to the acquisition is 
maintained. A proposed acquirer of divested assets must not itself 
present competitive problems. Should the parties fail to accomplish the 
divestiture within the time and in the manner required by the Consent 
Agreement, the Commission may appoint a trustee to divest these assets. 
If approved, the trustee would have the exclusive power and authority 
to accomplish the divestiture within one year of being appointed, 
subject to any necessary extensions by the Commission. The Consent 
Agreement

[[Page 58414]]

requires the parties to provide the trustee with access to information 
related to, among other things, the Rembrandt and Right Guard 
businesses as necessary to fulfill his or her obligations.
    The Order to Maintain Assets that is included in the Consent 
Agreement requires that P&G and Gillette maintain the viability of the 
Rembrandt and Right Guard businesses as competitive operations until 
the businesses are transferred to Commission-approved acquirers.\3\ The 
Commission has approved Edward Gold of PricewaterhouseCoopers as the 
Interim Monitor pursuant to the Consent Agreement to ensure that P&G 
and Gillette comply with the provisions of the Order.
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    \3\ The Order to Maintain Assets also requires that P&G and 
Gillette maintain the viability of the Soft & Dri and Dry Idea 
businesses.
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    There are also several provisions of the Consent Agreement designed 
to ensure the success of the divestiture of the Crest SpinBrush 
business to Church & Dwight. First, the Consent Agreement requires P&G 
to divest its rights and assets relating to adult battery-powered 
toothbrushes, including all research and development data, sales and 
marketing materials, and intellectual property. Second, P&G will 
provide Church & Dwight with a license to the Crest trademark, subject 
to minimum protections under trademark law, for use with the SpinBrush 
brand name that will be acquired outright by Church & Dwight. These 
provisions are designed to ensure that Church & Dwight can successfully 
transition the Crest SpinBrush family of products to a brand name of 
its choosing. Third, the Consent Agreement allows, and provides 
incentives for, P&G to render transitional services to Church & Dwight 
and retailers for a period of time to ensure the continuity and 
competitive viability of the products.
    The Commission is satisfied that Church & Dwight is a well-
qualified acquirer of the Crest SpinBrush business. Church & Dwight 
sells a variety of consumer products throughout the world, including 
oral care, personal care, and household products, and had total 
worldwide net sales of approximately $1.5 billion in 2004. The company 
owns several well-known oral care brands, such as Arm & Hammer[supreg], 
Aim[supreg], and Mentadent\TM\, and currently sells a variety of oral 
care products, including toothpaste and manual toothbrushes. Because of 
its existing business, Church & Dwight already has an experienced sales 
force that has relationships with major retailers and dental 
professionals, thereby enabling it to be a successful acquirer of the 
SpinBrush assets.
    The Consent Agreement also requires P&G to amend its joint venture 
agreement with Philips regarding IntelliClean. The amended agreement, 
which is an attachment to the order, allows Philips to independently 
market and sell IntelliClean. The amended agreement also eliminates all 
non-compete provisions allowing both P&G and Philips to develop and 
sell future rechargeable toothbrush products.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement, and is not intended to constitute an official 
interpretation of the proposed Decision and Order or the Order to 
Maintain Assets, or to modify their terms in any way.

    By direction of the Commission, with Chairman Majoras and 
Commissioner Harbour recused.
Donald S. Clark,
Secretary.
[FR Doc. 05-20043 Filed 10-5-05; 8:45 am]
BILLING CODE 6750-01-U


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