[Federal Register Volume 66, Number 248 (Thursday, December 27, 2001)]
[Notices]
[Pages 66896-66899]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31778]


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FEDERAL TRADE COMMISSION

[File No. 011 0057]


Diageo plc, et al.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before January 21, 2002.

ADDRESSES: Comments filed in paper form should be directed to: FTC/
Office

[[Page 66897]]

of the Secretary, Room 159-H, 600 Pennsylvania Avenue, N.W., 
Washington, D.C. 20580. Comments filed in electronic form should be 
directed to: <a href="/cdn-cgi/l/email-protection#c4a7abaab7a1aab0a5a3b6a1a1a9a1aab084a2b0a7eaa3abb2"><span class="__cf_email__" data-cfemail="70131f1e03151e0411170215151d151e04301604135e171f06">[email protected]</span></a>, as prescribed below.

FOR FURTHER INFORMATION CONTACT: Joseph Brownman, FTC, Bureau of 
Competition, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580, 
(202) 326-2605.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Section 2.34 
of the Commission's Rules of Practice, 16 CFR 2.34, notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to ceas4e 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 December 19, 2001), on the World Wide Web, at http://www.ftc.gov/os/2001/12/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, N.W., Washington, 
D.C. 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. Comments filed in paper form should 
be directed to: FTC/Office of the Secretary, Room 159-H, 600 
Pennsylvania Avenue, N.W., Washington, D.C. 20580. If a comment 
contains nonpublic information, it must be filed in paper form, and the 
first page of the document must be clearly labeled ``confidential.'' 
Comments that do not contain any nonpublic information may instead be 
filed in electronic form (in ASCII format, WordPerfect, or Microsoft 
Word) as part of or as an attachment to email messages directed to the 
following email box: <a href="/cdn-cgi/l/email-protection#dbb8b4b5a8beb5afbabca9bebeb6beb5af9bbdafb8f5bcb4ad"><span class="__cf_email__" data-cfemail="33505c5d40565d4752544156565e565d47735547501d545c45">[email protected]</span></a>. Such comments will be 
considered by the Commission and will be available for inspection and 
copying at its principal office in accordance with Section 
4.9(b)(6)(ii) of the Commission's Rules of Practice, 16 CFR 
4.9(b)(6)(ii)).

II. The Parties and the Transaction

    Proposed Respondent Diageo is a public limited company organized, 
existing and doing business under and by virtue of the laws of the 
United Kingdom with its office and principal place of business located 
at 8 Henrietta Place, London, England W1A 9AG. In the United States 
Diageo's operates a distilled spirits business through a wholly-owned 
subsidiary corporation, GuinnessUDV North America, Inc., whose offices 
are located at Six Landmark, Square, Stamford, Connecticut 06901.
    Proposed Respondent Vivendi is a societe anonyme organized, 
existing and doing business under and by virtue of the laws of France, 
with its office and principal place of business located at 42, avenue 
de Friedland, 75380 Paris Cedex 08, France. In the United States, 
Respondent Vivendi operates a distilled spirits business through Joseph 
E. Seagram & Sons, Inc., a wholly-owned subsidiary corporation whose 
offices are located at 375 Park Avenue, New York, New York 10152-0192.
    Third party Pernod Ricard is a societe anonyme organized, existing 
and doing business under any by virtue of the laws of France, with its 
office and principal place of business located at 142 Boulevard 
Haussmann, 75379 Paris, France. In the United States, Pernod Ricard 
operates a distilled spirits business through Austin, Nichols & Co., 
Inc., a wholly-owned subsidiary corporation whose offices are located 
at 156 East 46th Street, New York, New York.
    On December 19, 2000, Diageo, Pernod Ricard, and Vivendi entered 
into an agreement for Diageo and Pernod Ricard jointly to acquire 
Seagram. The value of the transaction is $8.15 billion. Diageo and 
Pernod Ricard had previously agreed that if their joint bid to acquire 
Seagram were successful, they would split the Seagram assets between 
them. Under their Framework Agreement, Diageo would pay $5 billion for 
its share of the Seagram assets and Pernod Ricard would pay $3.15 for 
the remaining share of Seagram.
    Among the distilled spirits brands that Diageo and Pernod Ricard 
agreed would be acquired and held by Diageo were Captain Morgan 
Original Spiced Rum and Captain Morgan's Parrot Bay Rum. Among the 
distilled spirits brands that Diageo and Pernod Ricard agreed would be 
acquired and held by Pernod Ricard were Seagram's Gin, Chivas Regal 
Scotch, the Glenlivet Scotch, and Martell Cognac.
    Under the terms of the proposed transaction, Pernod Ricard will 
acquire Seagram's Gin, Chivas Regal Scotch, the Glenlivet Scotch, and 
Martell Cognac brands. These are brands that Diageo should not acquire 
because doing so would be anticompetitive. Also, Diageo will acquire 
Joseph E. Seagram & Sons, Inc., which is the Vivendi entity responsible 
for marketing all the Seagram-owned brands in the United States. For 
this reason, commercially sensitive information about Segram's Gin, 
Chivas Regal Scotch, the Glenlivet Scotch, and Martell Cognac--
information that Diageo should not acquire for competitive reasons--
could remain with Joseph E. Seagram & Sons, Inc. and wind up in 
Diageo's possession.
    Also, under the terms of the proposed transaction, Diageo will 
continue to operate, for up to one year, a ``back office'' 
administrative operation for Pernod Ricard in connection with the 
Seagram brands that Pernod Ricard will be acquiring, Here too, as the 
transaction was originally structured by the parties, Diageo could 
acquire and learn commercially sensitive information about Seagram's 
Gin, Chivas Regal Scotch, the Glenlivet Scotch, and Martell Cognac. The 
proposed transaction also provides that for up to one year, under a co-
packing arrangement, Diageo will bottle for Pernod some of the 
Seagram's Gin and Scotch products sold in the United States.

III. The Proposed Complaint

    According to the Draft Complaint that the Commission intends to 
issue, Diageo and Vivendi compete in the United States in connection 
with the distribution and sale of the following distilled spirits 
markets: (a) Premium rum, (b) popular gin, (c) deluxe Scotch, (d) 
single malt Scotch, and (e) Cognac.
    The Commission is concerned that the proposed transaction would 
eliminate substantial competition between Diageo and Vivendi in each 
relevant market, and result in higher prices. The Commission stated it 
has reason to believe that the proposed transaction would have 
anticompetitive effects and violate Section 7 of the Clayton Act and 
Section 5 of the Federal Trade Commission Act.

IV. The Commission's Competitive Concerns

A. Premium Rum
    Total United States sales at retail of all premium rum products are 
about $1 billion. In this market, Bacardi USA, with its Bacardi Light 
and Bacardi Limon products, is the largest competitor with about a 54% 
share, Seagram, with its Captain Morgan Original Spiced Rum and Captain 
Morgan's Parrot Bay Rum products, has about a 33% share, and Diageo, 
with its Malibu Rum, has about an 8% share. After the proposed 
acquisition, Diageo and Bacardi USA together would have

[[Page 66898]]

a combined market share of about 95% in the premium rum market in the 
United States. The proposed acquisition will increase the Herfindahl-
Hirschman Index (``HHI'') (the customary measure of market 
concentration) in the premium rum market by about 500 points, and 
result in market concentration of about 4600 points.
B. Popular Gin
    Total United States sales of all popular gin products at retail are 
about $650 million. In this market, Diageo, through its ownership and 
marketing of Gordon's Gin (and interest in Gilbey's Gin), is the 
nation's second largest competitor, with about a 34% share, and 
Vivendi, through its ownership and marketing of Seagram's Gin (and 
interest in Burnett's White Satin Gin), is the nation's largest 
competitor, with about a 66% share. After the proposed transaction, 
Diageo will have access to highly sensitive commercial business 
information about Seagram's Gin, its principal competitor. Were Diageo 
actually to acquire Seagram's Gin, it would have a market share of (or 
have a financial interest in) close to 100% of the popular gin market 
in the Untied States. Such an acquisition would increase the HHI by 
about 4500 points, and result in market concentration of about 10,000 
points.
C. Deluxe Scotch
    Total United States sales of all deluxe Scotch products at retail 
are about $450 million. In this market, Diageo, with its Johnnie Walker 
Black Scotch, is the nation's largest competitor, with about a 51% 
share, and Vivendi, with its Chivas Regal Scotch, is the nation's 
second largest competitor, with about a 49% share. After the proposed 
transaction, Diageo will have access to highly sensitive commercial 
business information about Chivas Regal Scotch, its principal 
competitor. Were Diageo actually to acquire Chivas Regal Scotch, it 
would have a market share of close to 100% of the deluxe Scotch market 
in the United States. Such an acquisition would increase the HHI by 
about 5,000 points, and result in market concentration of about 10,000 
points.
D. Single Malt Scotch
    Total United States sales of all single malt Scotch products at 
retail are about $250 million. In this market, Diageo, with its Oban, 
Lagavulin, Dalwhinnie, Cardhu, Talisker, Cragganmore, Knocando, 
Glenkinchie, and Glen Ord brands, is the nation's fourth largest 
competitor, with about a 6% share, and Vivendi, with it's The Glenlivet 
Scotch product, is the nation's largest competitor with about a 26% 
share. After the proposed transaction, Diageo will have access to 
highly sensitive commercial business information about The Glenlivet 
Scotch. Were Diageo actually to acquire The Glenlivet Scotch, it would 
have a market share of about 32% in the single malt Scotch market in 
the United States. Such an acquisition would increase the HHI by about 
300 points, and result in market concentration of about 2,000 points.
E. Cognac
    Total United States sales of all Cognac products at retail are 
about $1 billion. In this market, Diageo, with its Hennessy brand, is 
the largest competitor with about a 54% share, and Vivendi, with its 
Martell product, is the third largest competitor with about a 9% share. 
After the proposed transaction, Diageo will have access to highly 
sensitive commercial business information about Martell Cognac. Were 
Diageo actually to acquire Martell Cognac, it would have a market share 
of about 63% of the Cognac market in the United States. Such an 
acquisition would increase the HHI by about 900 points, and result in 
market concentration of about 4,600 points.

V. The Proposed Consent Order

A. The premium rum market
    The Proposed Consent Order, if finally issued by the Commission, 
would settle all of the charges alleged in the Commission's Draft 
Complaint. Under the terms of the Proposed Consent Order, Diageo will 
be required to divest its Malibu rum business, worldwide, to an 
acquirer that is acceptable to the Commission.
    Diageo will be required to complete the mandated divestiture within 
six (6) months from the date it (together with Pernod) acquires 
Seagram. In the event that Diageo does not complete the required 
divestiture in the time allowed, the Commission will appoint a trustee 
to sell the assets. The Proposed Consent Order empowers the trustee to 
sell such additional assets as may be necessary to assure the 
marketability, viability, and competitiveness of the businesses that 
are required to be divested. Pending Diageo's divestiture of the Malibu 
rum business to a Commission-approved acquirer, and to prevent 
competitive harm pending the divestiture and to ensure that the assets 
required to be divested will remain a competitively viable business, 
the Commission has appointed Theodore F. Martens of 
PricewaterhouseCoopers LLP as an interim monitor. Among other things, 
the monitor will ensure that during the period of time that Diageo will 
own both the Malibu and Captain Morgan rum businesses, it will manage 
them separately.
B. The popular Gin, deluxe Scotch, single malt Scotch, and Cognac 
markets
    Under the terms of the Proposed Consent Order, Diageo will be 
prevented from obtaining or using any commercially sensitive business 
information relating to Seagram's Gin, Chivas Regal Scotch, The 
Glenlivet Scotch, or Martell Cognac. To ensure that this will not 
occur, Diageo has agreed to the following procedures.:
    First, to ensure that Diageo will not acquire pre-existing 
competitively sensitive information about Seagram's Gin, Chivas Regal 
Scotch, The Glenlivet Scotch, and Martell Cognac, Vivendi will hire an 
independent consultant to identify and segregate those materials. This 
will prevent Diageo from seeing the competitively sensitive business 
information in the materials that Diageo will be acquiring.
    Second, Diageo will implement a series of firewalls to keep 
confidential information from the back office operation it will be 
operating in part for the benefit of Pernod, or confidential 
information that Diageo will learn because of its co-packing 
arrangement, from getting into the hands of Diageo marketing personnel.
C. The Order To Hold Separate and Maintain Assets
    Accompanying the Proposed Consent Order is an Order to Hold 
Separate and Maintain Assets. This order requires Diageo to preserve 
and maintain the Seagram Captain Morgan rum assets as a separate 
competitive entity pending the divestiture of the Malibu assets. This 
will ensure that there will be no interim harm to competition pending 
the divestiture by Diageo of the Malibu assets during the period 
(maximum of six months) that Diageo will be the owner of both Malibu 
Rum and Captain Morgan Rum.
    The Order to Hold Separate and Maintain Assets also requires Diageo 
to preserve and maintain the competitive viability of the Malibu 
assets, pending their divestiture. This will ensure that the 
competitive value of these assets will be maintained after Diageo 
acquires the Seagram rum assets but before the Malibu Rum assets are 
actually divested.

VI. The Opportunity for Public Comment

    The Proposed Consent Order has been placed on the public record for 
thirty (30) days for receipt of comments from

[[Page 66899]]

interested persons. Comments received during this period will become 
part of the public record. After thirty (30) days, the Commission will 
again review the agreement and the comments received, and will decide 
whether it should withdraw from the agreement or make final the Consent 
Order in the agreement.
    By accepting the Proposed Consent Order subject to final approval, 
the Commission anticipates that the competitive problems alleged in the 
Draft Complaint will be resolved. The purpose of this analysis is to 
invite and facilitate public comment concerning the Proposed Consent 
Order. It is not intended to constitute an official interpretation of 
the Proposed Consent Order, nor is it intended to modify the terms of 
the orders in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 01-31778 Filed 12-26-01; 8:45 am]
BILLING CODE 6750-01-M


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