Federal Trade Commission: Study Needed to Assess the Effects of Recent Divestitures on Competition in Retail Markets
Published: 2002-09-25T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: The Federal Trade Commission (FTC) seeks to prevent business practices that are anticompetitive, deceptive, or unfair to consumers. If FTC determines that a merger may harm competition in the marketplace, the agency may decide to block the merger or select a remedy that addresses the anticompetitive problems it has identified. FTC's preferred remedy is divestiture--the selling of a business or assets by one or both of the merging parties to maintain or restore competition where it might be harmed by the merger. When divestiture is chosen as a remedy, FTC usually drafts a proposed agreement with the merging parties that contains an order requiring the divestiture needed to remedy the anticompetitive problems. If all parties agree, FTC issues a proposed order which is made available to the public for comment for 30 days and, in most cases, authorizes the parties to consummate the merger. According to FTC staff, FTC decisions to use particular divestiture approaches are (1) based on the unique facts of each case and do not readily translate into written guidelines or systematic aggregation and (2) tied to proprietary company information that FTC is statutorily prohibited from disclosing to the public. From fiscal years 1990 through 2000, FTC used clean sweep divestitures, single buyers, or up-front buyers in the 31 divestiture orders announced for public comment in the grocery store, drug store, funeral services, and gas station industries (up-front buyers were not used at all in these industries prior to fiscal year 1996). Although there were too few buyers to analyze the level of smaller business participation in purchasing divested drug store, funeral services, and gas station assets for the period reviewed, GAO's analysis found that, after 1996, the smaller buyers were significantly less likely to purchase divested assets. FTC has not systematically measured the success or failure of the divestitures it has approved since it developed preferences for approaches like clean sweep and up-front buyers. In 1999, FTC reported the results of a study on divestiture orders made final during fiscal years 1990 through 1994 that found (1) FTC's divestiture orders had created viable competitors in the relevant markets and (2) smaller buyers succeeded at least at the same rate as larger buyers. However, without current information on the economic impact of its divestiture practices on the marketplace, especially given the changes it has made since the period covered by its 1999 study, FTC cannot state that divestiture orders have, among other things, restored or maintained competition in the affected markets.

section_title: Letter
paragraphs: The Federal Trade Commission’s (FTC) mission is, in part, to prevent  business practices that are anticompetitive, deceptive, or unfair to  consumers.  Among its responsibilities, FTC analyzes mergers (both  proposed and completed) for possible anticompetitive harm in the  marketplace, such as price increases or reduced innovation.  If FTC  determines that a merger may result in anticompetitive harm, it may decide  that no remedy short of blocking the merger will fully and effectively  resolve its concerns.  However, if FTC decides that the anticompetitive  harm can be resolved without blocking the entire merger, its challenge is to  select a remedy or remedies that address the anticompetitive problems it  has identified, and, as closely as possible, maintain or restore competition  to premerger levels without unnecessarily limiting the parties’ lawful  objectives, such as achieving efficiencies.  FTC’s preferred remedy is  divestiture—the selling of a business or assets by one or both of the  merging parties to maintain or restore competition where it might be  harmed by the merger.  When FTC staff determine that divestiture is the  remedy to address the anticompetitive problem(s) that a merger presents,  they usually draft a proposed agreement between FTC and the merging  parties that contains an order requiring the divestiture needed to remedy  the anticompetitive problem(s).  If all parties agree, FTC issues a proposed  order. This proposed consent order (1) is made available to the public for  comment for 30 days and (2) in most cases, authorizes the parties to  consummate the merger.  From fiscal years 1990 through 2000, FTC  announced for public comment 192 merger consent orders, of which  153 called for the divestiture of assets.
Recently, concerns have been raised that (1) certain FTC divestiture  practices may hinder small businesses’ opportunity to purchase divested  assets, particularly divested retail assets such as grocery stores, and  (2) FTC provides very limited public information on the rationale for the  divestiture approaches used in its divestiture orders.  This report responds  to your request that we obtain information on FTC’s use of (1) “clean  sweep” divestitures, in which one of the merging parties divests all of its  assets in the relevant product market(s), such as the retail sale of food and  grocery products in supermarkets, within a single geographic market;  (2) single buyers, who purchase all divested assets in a geographic market;  and (3) up-front buyers, who are identified by the merging parties and, as  agreed to by FTC, included in the proposed consent order as the buyers of  the divested assets.  As agreed with your offices, we focused on  divestitures required by consent orders that FTC announced for public  comment from fiscal years 1990 through 2000 for four industries—the  grocery store, drug store, funeral services, and gas station industries—that  sell products and/or services directly to consumers. In particular, we are  reporting on    the history of FTC’s clean sweep divestiture, single buyer, and up-front  buyer practices within the context of FTC’s overall merger remedies and  the circumstances under which these practices have been used;  the extent of FTC’s use of these practices in the grocery store, drug  store, funeral services, and gas station industries;  the level of small business participation in purchasing divested assets in  the four industries and the factors that may explain the level of small  business participation;  and  FTC’s effort to gauge the success or failure of these divestiture practices  and the impact of these practices on the marketplace, especially small  businesses.
We are also providing information on comments FTC received pertinent to  these practices in the four industries as well as comments on how the  practices impacted the ability of small businesses to purchase divested  assets.
In performing our work, we obtained and analyzed data from and discussed  divestiture practices with FTC staff responsible for reviewing proposed  mergers and, when appropriate, recommending remedies; reviewed  relevant public speeches and documents prepared by current and former  FTC Commissioners and staff; reviewed and analyzed FTC consent orders  to identify consent orders that required divestitures; and obtained and  reviewed relevant documents prepared by and discussed FTC’s divestiture  practices with antitrust practitioners—attorneys and economists in private  practice who specialize in antitrust issues—academicians, associations  that represent small and independent businesses in the four industries  included in our review, as well as officials with the Small Business  Administration (SBA).  We also collected and analyzed publicly available  data on the revenue of buyers of divested assets for the four industries and,  when public data were not available, directly from the buyers of divested  assets.  For this report, we focused on proposed consent orders that were  announced for public comment during fiscal years 1990 through 2000,  rather than consent orders made final during this period, because in most  cases at the point that FTC accepts a proposed consent order for public  comment, the parties are allowed to consummate the merger.  Also,  unless otherwise noted, we use the term “divestiture order” to refer to any  consent order that required a divestiture.  Our work was limited to publicly  available information because, according to FTC, under the Hart-Scott- Rodino Antitrust Improvements Act (HSR Act) of 1976, FTC is prohibited  from disclosing information provided by parties to merger transactions.
We performed our work in Washington, D.C., between April 2001 and  August 2002 in accordance with generally accepted government auditing  standards.  (Appendices I and II discuss our objectives, scope, and  methodology in greater detail.)
subsections: section_title: Background
paragraphs: FTC is an independent agency headed by five Commissioners appointed by  the President and confirmed by the Senate, each serving staggered 7-year  terms.  FTC’s mission is, in part, to prevent business practices that are  anticompetitive, deceptive, or unfair to consumers.  It acts to prevent  business practices that restrain competition and attempts to ensure that  the marketplace continues to provide a full range of product and service  options among which consumers can choose.  The Bureau of Competition  is FTC’s antitrust arm.  FTC’s Bureau of Competition and Bureau of  Economics have the responsibility for merger review.  The Bureau of  Economics helps to ensure that FTC considers the economic impact of its  actions.  To achieve this, the Bureau of Economics provides economic  analysis and support to the Bureau of Competition and the Commission in  carrying out FTC’s antitrust responsibilities.
FTC generally shares responsibility for enforcing the federal antitrust laws  with the Department of Justice’s (DOJ) Antitrust Division. The federal  antitrust statutes are the Sherman Act, as amended (15 U.S.C. 1-7); the  Clayton Act, as amended (15 U.S.C. 12-27), which includes the Robinson- Patman Act; and the FTC Act, as amended (15 U.S.C. 41 et seq.).  The acts’  objectives are to prevent anticompetitive behavior and preserve and  promote competition in the marketplace.  FTC is solely responsible for  enforcing the FTC Act, while DOJ is solely responsible for enforcing the  Sherman Act. Both FTC and the Antitrust Division are responsible for  enforcing Section 7 of the Clayton Act, which prohibits mergers and  acquisitions that may substantially lessen competition or tend to create a  monopoly in any market. FTC and the Antitrust Division have clearance  procedures to determine which agency will investigate a potential antitrust  violation.  The agencies decide which one will conduct a particular  investigation primarily by examining current agency expertise in the  industries at issue.
The HSR Act, which added Section 7A to the Clayton Act, requires certain  parties to provide premerger notification of proposed acquisitions and  mergers prior to consummation to assist FTC and the Antitrust Division in  investigating whether a proposed acquisition would violate Section 7 of the  Clayton Act, in that the effect of such acquisition may be substantially to  lessen competition, or to tend to create a monopoly. The premerger  notification provisions of the HSR Act require companies exceeding certain  thresholds of company size and value of the transaction to notify FTC and  the Antitrust Division of the proposed merger transaction, submit  documents and other information to the agencies concerning the  transaction, and refrain from closing the transaction until a specific waiting  period has expired, or their request for early termination of the waiting  period has been granted. FTC and the Antitrust Division then have up to  30 days (15 days for cash tender offers and bankruptcy sales) from the time  of the filing of the proposed merger to review the filing and determine  whether to send the parties a request for additional information (a second  request).  A second request extends the waiting period to enable further  review. If FTC or the Antitrust Division sends a second request to the  parties, the parties have to wait 30 days (10 days for cash tender offers and  bankruptcy sales) from the date the parties substantially complied with the  request before consummating the acquisition to allow the agencies time to  complete the investigation and to determine whether to take law  enforcement action. If the reviewing agency does not send a second  request, or the parties have substantially complied with a second request,  and the waiting period has expired, or if the parties’ request for early  termination of the waiting period has been granted, the parties can  consummate the merger or acquisition.
For merger investigations conducted by FTC, prior to the expiration of the  waiting period, FTC staff are to seek to complete the analysis of likely  competitive effects of the transaction and prepare recommendations to the  FTC Commissioners on whether enforcement action is warranted.  If FTC  staff determine that a merger is likely to be anticompetitive, FTC has wide  discretion in choosing an effective remedy to provide relief that addresses  the competitive problems it identified and maintains or restores  competition, without unnecessarily limiting the parties’ lawful objectives,  such as achieving efficiencies.  To meet this challenge, the agency can  choose any number of possible actions, including blocking the entire  transaction; requiring full or partial divestiture, either broadly or in specific  geographic markets; requiring contractual arrangements; or requiring some  form of behavioral relief, such as establishing firewalls in vertical  transactions to prevent the sharing of competitive information.
In cases where FTC staff and the merging parties have negotiated a remedy  and agreed upon a proposed settlement, staff recommend that the  Commission accept the proposed order and place it on the public record to  enable the public to comment.  The public is given the opportunity to  provide comments for the record about the proposed consent order.  FTC  staff are to analyze the public comments received and may recommend  appropriate changes to the final complaint and order issued by FTC.  FTC  also may terminate the HSR waiting period and allow the merging parties to  begin to consummate the transaction, including any divestitures, if the  buyer is identified in the proposed order.  However, for consent orders in  which FTC has required a divestiture(s), and the buyer(s) of the divested  asset(s) is not identified in the proposed order, the merging parties must  subsequently submit an application to FTC requesting approval to divest  the assets to a proposed buyer(s) and await FTC approval before  consummating the divestiture.  These applications also must be placed on  the record for public comment generally for 30 days.  The staff analyze the  comments received and make recommendations to the Commission on  whether it should approve the divestiture application. (Appendix IV  provides additional information on the merger review process.)
The number of mergers reported annually to FTC and the Antitrust Division  pursuant to the HSR Act more than doubled from 2,262 transactions in  fiscal year 1990 to 4,926 transactions in fiscal year 2000.  During this same  period, FTC announced 192 consent orders involving mergers, of which 153  (about 80 percent) were divestiture orders. (Appendix V provides  information on the 153 divestiture orders FTC announced for public  comment during fiscal years 1990 through 2000).
section_title: FTC Developed Preferences for Clean Sweep Divestitures, Single Buyers, and Up- Front Buyers During the Mid-1990s
paragraphs: According to FTC staff, FTC decisions to use particular divestiture  approaches are (1) based on the unique facts of each case and do not  readily translate into written guidelines or systematic aggregation and  (2) tied to proprietary company information that FTC is statutorily  prohibited from disclosing to the public. Accordingly, FTC does not  systematically compile and make publicly available data that show under  what circumstances clean sweep divestitures, single buyers, and up-front  buyers should be or have been used. However, available information from  FTC staff, speeches, and other public documents reveal that during the  mid-1990s, based on lessons learned from past divestitures, FTC began to  develop preferences for divestiture approaches designed to restore  competition more quickly and reduce the likelihood that assets would  deteriorate while awaiting final action on the proposed merger.  These  preferences may include clean sweeps, single buyers and up-front buyers.   However, according to FTC staff, it depends on the industry whether they  are appropriate.
subsections: section_title: History of Divestiture Approaches Is Difficult to Chronicle
paragraphs: The history of FTC's clean sweep, single buyer, and up-front buyer  divestiture approaches is difficult to chronicle because FTC does not have  readily available public data that show under what circumstances they  should be or have been used. Our review of divestiture orders and related  public documents, such as FTC’s analysis to aid public comment, revealed  that FTC provides limited information on the rationale for the use of  particular divestiture approaches.  FTC staff told us that the staff who  worked on the order can readily provide information on the basis for using  the approaches based on their knowledge of the case and their personal  case files.  FTC staff acknowledged that public documents typically do not  provide detailed, meaningful information on why a particular approach was  used.  However, they said that staff document information on the rationale  for the approaches and provisions used in a divestiture order in internal,  confidential documents, such as staff memorandums to the Bureau  Directors and Commissioners.  They also told us that because FTC’s  decisions are largely tied to companies’ trade secret information, which  FTC is statutorily prevented from disclosing to the public, FTC can provide  to the public only limited information on the basis for its decisions. “Our approach to remedies evolves, as does our approach to merger enforcement generally.  We learn from each case what works and what doesn't work. Our past actions provide  guidance, but there are no absolute rules. We evaluate remedies based on the facts in each  individual case. We also go back and evaluate our remedy process…to see if expectations  are borne out and the remedies are effective.” “One aspect of our merger relief that might bear scrutiny is the FTC’s insistence in most of  its divestiture orders that the merging firm locate an up-front buyer for the divested assets.  I  believe that this requirement has been warranted in a number of the orders that I’ve  reviewed in more than three years at FTC, but I would be concerned if the agency became  too rigid and unflinching in its insistence on this element of an order.”
section_title: Speeches and Articles Provide Insights into Recent Changes to FTC’s Approach to Divestitures
paragraphs: Although it is not always clear under what circumstances FTC has used one  or a combination of divestiture approaches, recent speeches and articles  and our discussions with FTC staff do provide some insight into the  evolution of these approaches during the mid 1990s.  Specifically, it appears  that in 1996, based on lessons learned from past divestitures, FTC  developed preferences for how to structure divestitures and began to  modify its divestiture approaches.
According to an April 1997 speech by the then Senior Deputy Director of  the Bureau of Competition, FTC had not been satisfied with the  effectiveness of past divestiture orders.  He said that FTC began a  retrospective study of nine divestiture orders selected to assess the  effectiveness of particular types of divestiture orders, which showed the  need for changes to the way FTC approached merger remedies.  He further  said that FTC staff had found that the divestiture process was less effective  than they would have hoped and “came to appreciate better the difficulties  in creating a viable divestiture package of assets that had not previously  been a stand-alone business”—a business that contains all the assets  needed to enable a buyer to be operational the day after purchasing the  assets, selling to all the same customers.
By 1996, according to an October 1996 speech by the then Director of the  Bureau of Competition, FTC had begun to take steps to shorten the time  that it took to complete a divestiture because of FTC’s desire to fashion  remedies that (1) restored competition more quickly and (2) reduced the  likelihood that assets would deteriorate while awaiting final action on the  proposed merger.  These steps included, among others, the identification  of up-front buyers and the requirement for the divestiture of "broader asset  packages" where assets are grouped into one divestiture package to ensure  continued marketability, viability, and competitiveness following the  merger.  In an April 1997 speech, the then Senior Deputy Director of the  Bureau of Competition noted that because of these and other steps, the  average time between the date a divestiture order is provisionally approved  and the ordered divestiture is approved dropped from 15 months in fiscal  year 1995 to 7 months in fiscal year 1996.
section_title: FTC Developed Preferences for Clean Sweeps, Single Buyers, and Up-front Buyers in the Mid-1990s
paragraphs: FTC staff acknowledged that they have developed a preference for certain  practices in negotiating some divestiture orders, particularly among retail  industries, like grocery stores and gas stations.  Regarding clean sweeps,  single buyers, and up-front buyers, FTC staff said that all three approaches  tend to provide them greater assurance that the divestitures will help  restore or maintain competition at levels existing before the merger. “Although the Division has not adopted this as a policy, we do consider clean sweep as an  option when we look at a divestiture package.  The obvious advantage to requiring a clean  sweep is that the sale of an ongoing business, as opposed to various stand-alone assets  pieced together, may provide greater assurance that the assets will be viable in the hands of  a suitable purchaser.  Such a policy also prevents the parties from choosing the least  attractive assets from each company for divestiture…The potential disadvantage for  requiring a clean sweep is that it prevents the parties from realizing possible efficiencies by  integrating the different assets of both companies.”
Regarding up-front buyers, which FTC also refers to as buyers up-front,  FTC staff said that they have made greater use of up-front buyers because  the approach reduces the time for the divestiture(s) to take place and gives  them the opportunity to evaluate the marketability of the assets to be  divested with more concrete evidence.  According to FTC staff, the up-front  buyer approach also enables staff to better determine whether, among  other things, there is a viable buyer(s) for the proposed divestiture assets.   Additionally, as pointed out in various speeches by FTC staff, the up-front  buyer approach reduces the amount of time needed for the assets to be  divested because a buyer can be identified before the merger transaction  occurs—a factor in grocery store divestitures and those of other retail  operations, where assets may quickly deteriorate during the search for a  buyer.  FTC staff also said that whether an up-front buyer will be required is  dependent upon the circumstances of each individual case and generally  not on the industry in which the merging parties operate.
section_title: Clean Sweep Divestitures, Single Buyers, and Up-Front Buyers Have Been Used Across Retail Industries, but Have Been Increasingly Used in Grocery Store Divestitures Since Fiscal Year 1996
paragraphs: During fiscal years 1990 through 2000, clean sweep divestitures, single  buyers, and/or up-front buyers were used in the 31 divestiture orders in the  four industries we reviewed—grocery stores, drug stores, funeral services,  and gas stations—although up-front buyers were not used at all prior to  fiscal year 1996.  The three approaches were used most frequently in the  16 grocery store divestiture orders, particularly in 1996 or later.  During the  11-year period, there was a wide variation in the use of these approaches in  the 15 divestiture orders covering the other three industries.  According to  FTC staff, the remedies approved in each of the 31 divestitures were based  on the unique facts of the case, with the goal of remedying an otherwise  unlawful acquisition, and only after FTC determined the remedy would  achieve that objective.
subsections: section_title: FTC Used Clean Sweeps, Single Buyers, and Up-Front Buyers in Grocery Store Divestitures with Greater Frequency Since Fiscal Year 1996
paragraphs: FTC used clean sweeps, single buyers, and/or up-front buyers to remedy  anticompetitive concerns for 16 grocery store mergers throughout fiscal  years 1990 through 2000, but used these approaches with increased  frequency during the latter part of the period.  We analyzed the use of clean  sweeps, single buyers, and up-front buyers in grocery store divestitures  over the 11-year period.  Because FTC speeches about its merger remedies  indicated that FTC began to make changes in its divestiture approaches  during fiscal year 1996, we focused on two periods—the period from fiscal  years 1990 through 1995, before FTC started to make these changes, and  fiscal years 1996 through 2000, the period during which FTC staff  announced that FTC had begun to make these changes.
section_title: Clean Sweep Divestitures
paragraphs: Clean sweep divestitures were used about three-fourths of the time in the  latter period, compared with one-third of the time in the earlier period.  We  examined each of the 16 grocery store divestiture orders to determine how  many geographic markets were covered under the order and determined  that, in total, FTC had delineated 131 geographic and product markets.  Because FTC's divestiture orders and related documents, such as the  analysis to aid public comment, typically do not indicate whether a  divestiture is a clean sweep, we asked FTC to designate which of the 131  markets involved clean sweep divestitures.  FTC provided data on 128  markets that showed that the number of clean sweep divestitures involving  grocery store mergers had become much more prevalent during fiscal years  1996 through 2000, the period in which FTC staff said that they had initiated  reforms.  Whereas about 33 percent (3 of 9) of the markets defined in  divestiture orders announced during fiscal years 1990 through 1995  involved clean sweep divestitures, about 75 percent (89 of 119) of the  markets involved clean sweep divestitures during fiscal years 1996 through  2000. Table 1 shows the extent to which clean sweeps were used for the 6  divestiture orders announced during fiscal years 1990 through 1995, the 10  divestiture orders announced during fiscal years 1996 through 2000, and for  the entire period.
FTC staff said that the increased use of clean sweeps occurred because  FTC’s past experience with grocery store mergers and divestitures taught  staff that individual stores might not be as competitive as chains and  packages containing all of the assets of one of the merging parties are  easier to sell.  Additionally, they said that this type of divestiture gives FTC  staff greater confidence that they are preserving competition in the  affected geographic market.
section_title: Single Buyers
paragraphs: For the 16 grocery store divestiture orders, the use of single buyers more  than tripled between the periods.  As shown in table 2, single buyers were  used in 20 percent (1 of 5) of the geographic markets with multiple divested  assets during fiscal years 1990 through 1995, but in 72 percent (36 of 50) of  the geographic markets in fiscal years 1996 through 2000.
According to FTC staff, their preference for single buyers started when the  nature of grocery store mergers began to change.  They said that recent  mergers include mergers of chains that are direct competitors in the same  geographic market, whereas in past years, merging parties purchased  certain stores from one another, not the entire chain.  They added that  because of chain-wide distribution efficiencies of divested stores, a single  buyer can operate divested assets more efficiently and easily.  FTC staff  told us that if the stores of the merging parties were competing directly  throughout the geographic market, a single buyer who can operate all the  assets will give FTC greater confidence that competition will be replicated  in the market.
section_title: Up-Front Buyers
paragraphs: Up-front buyers were not included in any of the six grocery store  divestiture orders issued during fiscal years 1990 through 1995.  However,  about 76 percent of the buyers for divestiture orders announced during  fiscal years 1996 through 2000 were up-front buyers. Table 3 shows the  extent to which up-front buyers were used in grocery store divestiture  orders announced during fiscal years 1990 through 1995, fiscal years 1996  through 2000, and for the entire period.
FTC staff told us that as FTC became more familiar with grocery store  mergers and the potential effect of long divestiture periods on the viability  of the grocery store assets to be divested, it became apparent that up-front  buyers were a material factor in making divestitures successful.  They said  that, in the early to mid-1990s, merging parties were given up to 12 months,  and sometimes longer, to find a buyer(s) for the divested assets after a  divestiture order became final, regardless of the industry in which the  merger was taking place.  Additionally, in a March 2002 FTC document  titled, “Frequently Asked Questions About Merger Consent Order  Provisions,” FTC staff noted that “...supermarkets and other retail  operations (e.g., retail pharmacies) are particularly vulnerable to having  their assets deteriorate during the search for a post order buyer; this affects  the ability of the assets to be operated in a manner that maintains or  restores competition in the relevant market.”  FTC staff told us that once  FTC determined with respect to grocery store mergers that, among other  things, the longer the merging parties have control of the assets, the more  likely it is that the assets will deteriorate, FTC established a preference for  up-front buyers, particularly in the retail sector.
In our discussions with FTC staff about their use of clean sweeps, single  buyers, and up-front buyers, they said that grocery store divestitures that  were accepted by FTC 10 years ago had long divestiture periods and no  up-front buyers, but these divestitures would not likely be accepted today.   FTC staff told us that, in recent years, generally FTC’s starting point for  settlement discussions with the merging parties in a grocery store merger is  a clean sweep divestiture with a single, up-front buyer.  According to FTC  staff, such a remedy ensures restoration of the status quo before the  merger. Additionally, FTC staff told us that it would take additional time  and considerable amount of evidence to convince FTC that competition  could be restored through selling a combination of the merging parties’  assets to multiple buyers in a single geographic market.  In such cases, FTC  staff said they would have to analyze information on each individual store  and its role in the merging parties’ overall operations.  FTC staff also noted  that the grocery store mergers in more recent years tended to be much  larger and involve more extensive geographic overlaps than previous  mergers.
While FTC staff have said that FTC typically prefers up-front buyers in  divestiture orders involving grocery stores and sometimes in other retail  operations, they told us that they are willing to diverge from their  preference for clean sweep divestitures and single buyers when the  proposed divestiture will restore or maintain competition. A key example is  the Albertson’s, Inc., and American Stores Company divestiture order,  which at the time it was announced for public comment in fiscal year 1999  was the largest retail divestiture ever required by FTC.   The order differed  from many recent divestiture orders in the grocery store industry in that  many of the markets involved the divestiture of a combination of selected  assets from both of the merging parties—a practice sometimes referred to  as “mix and match”—versus clean sweeps, and there were several multiple  buyer markets, that is markets in which several buyers were purchasing the  assets FTC ordered to be divested.  According to FTC staff, mix-and-match  divestitures require a more careful analysis of each retail location than  does the divestiture of only one of the merging parties stores because staff  must examine more closely whether the mixed assets can compete  effectively.  FTC must determine, for example, whether the mixed assets  will be capable of producing efficiencies and economies of scale and scope  comparable to those existing in the market before the merger.  FTC staff  estimated that the Albertson’s and American divestiture order took at least  6 additional months to negotiate with the merging parties because of the  need to assess the mix and match approach and the geographic markets  where assets were divested to multiple buyers as well as to the buyers  purchasing assets in multiple geographic markets.
section_title: FTC’s Use of Divestiture Practices Varied in Other Retail Industries
paragraphs: There was a wide variation in the use of clean sweeps, single buyers, and/or  up-front buyers in the 15 divestiture orders FTC announced in the drug  store, funeral services, and gas station industries during fiscal years 1990  through 2000.
section_title: Drug Store Divestitures
paragraphs: For the five drug store divestiture orders FTC announced during fiscal  years 1990 through 2000, all of the divestitures were to single buyers, but  the use of clean sweep divestitures and up-front buyers varied.  Three of  these orders involved 11 geographic markets between fiscal years 1990  through 1995 and two involved 7 geographic markets between fiscal years  1996 through 2000.   In terms of clean sweep divestitures, single buyers, and  up-front buyers:  All of the 11 geographic markets in the three drug store divestiture  orders announced during fiscal years 1990 through 1995 involved clean  sweeps of drug store assets within those markets.  By contrast, 4 of the 7 (57 percent) geographic markets in the two orders announced  between fiscal years 1996 through 2000 involved clean sweeps of drug  store assets.
All five drug store divestiture orders involved the divestiture of a total of  294 assets from fiscal years 1990 through 2000, and all of the divestitures  were to single buyers.  For the two divestiture orders announced during  fiscal years 1996 through 2000, FTC explicitly required single buyers in 4 of the 7 geographic markets to ensure that buyers were large enough  and had the coverage to serve as an alternative anchor pharmacy chain  for a pharmacy benefit management firm’s retail pharmacy network.
While there were no up-front buyers designated among the 10 buyers of  drug store assets in the three divestiture orders announced during the  earlier period, 2 of the 3 buyers of drug store assets for the two  divestiture orders announced from fiscal years 1996 through 2000 were  up-front buyers.
section_title: Funeral Services Divestitures
paragraphs: Our analysis of funeral services divestitures showed that the use of clean  sweeps, single buyers, and up-front buyers remained relatively unchanged  for the seven funeral services divestiture orders FTC announced during  fiscal years 1990 through 2000.  FTC announced four divestiture orders  requiring the divestiture of funeral services assets in 8 geographic markets  between fiscal years 1990 through 1995, and three requiring the divestiture  of funeral services assets in 19 geographic markets between fiscal years  1996 through 2000.  Specifically:  The divestitures in 6 of the 8 (75 percent) geographic markets  designated in the four funeral services divestiture orders announced  during fiscal years 1990 through 1995 were clean sweep divestitures and  14 of the 19 (about 74 percent) geographic markets for the three funeral  services divestiture orders announced during fiscal years 1996 through  2000 were clean sweep divestitures.
In all cases, a single buyer purchased the assets in each of the multiple  asset markets.  Uniquely, in six of these seven divestiture orders, a single  buyer (although not the same buyer in all six cases) purchased all of the  divested assets in all of the geographic markets.  For example, in the  Service Corporation International and Equity divestiture order  announced in fiscal year 1999, there were 14 geographic markets in  which FTC ordered divestitures; a single buyer purchased all of the  assets in all of the geographic markets.
Over the 11-year period, only one of the eight buyers of funeral services  assets was an up-front buyer—this occurred in a divestiture order  announced in fiscal year 1999.
section_title: Gas Station Divestitures
paragraphs: For gas station divestiture orders, we could not analyze differences in the  use of clean sweeps, single buyers, and up-front buyers between the two  periods—fiscal years 1990 through 1995 and fiscal years 1996 through  2000—because there were no divestiture orders requiring the divestiture of  gas stations announced in the first period.  However, FTC announced three  divestiture orders requiring the divestiture of gas stations during the latter  period.  In terms of the use of clean sweeps, single buyers, and up-front  buyers in fiscal years 1996 through 2000, we found that:  The three divestiture orders involved 14 geographic markets, and  13 of the 14 (about 93 percent) geographic markets had clean sweep  divestitures. Two of the divestiture orders involved clean sweep  divestitures in all of the markets in which gas stations were divested.
All three orders required single buyers to purchase the assets.  (In total,  approximately 980 assets were divested across the 14 geographic  markets.)  According to FTC, the divestiture of large packages of retail  gasoline assets should allow the buyer to efficiently advertise a brand,  develop credit card and other marketing programs, persuade  distributors to market the buyer’s brand and otherwise compete in the  sale of branded gasoline.
Only one of seven buyers that purchased divested assets in the three  divestiture orders was an up-front buyer.
FTC staff told us that the remedy approved in each of the divestitures  covered in our review was based on the unique facts of that case—not on  any formula.  Instead, FTC staff said that they examined each market in  order to determine how most effectively to remedy the anticompetitive  effects of the particular merger.  They said that in one case, FTC may have  ordered divestiture of all of the assets of one of the merging parties relating  to a particular product market in every affected geographic market because  FTC determined that any buyer would need a minimum scale and/or scope  of operations.  In another case, FTC may have ordered divestiture of all of  the assets of one of the merging parties relating to a particular product  market in most, but not all, of the geographic markets because the buyer  had demonstrated that the remaining assets of that merging party were not  profitable and, therefore, were undesirable.  They added that FTC may have  ordered divestiture of carefully selected assets in each geographic market  without regard for which of the merging parties owned the assets, but only  after an extensive and time-consuming financial analysis of each asset.
According to FTC staff, in all cases, FTC’s objective has been to remedy the  anticompetitive effects that FTC concluded would result from an otherwise  unlawful acquisition, and the remedy was accepted only after a  demonstration that it would achieve that objective.
section_title: Smaller Businesses Were Significantly Less Likely To Purchase Divested Grocery Store Assets after Fiscal Year 1996
paragraphs: Although we did not have enough observations to analyze statistically the  differences in the level of smaller business participation in purchasing  divested drug store, funeral services, and gas station assets from fiscal  years 1990 through 2000, our analysis of the buyers of divested grocery  store assets showed that smaller buyers, including those that met SBA’s  definition of a small business, were significantly less likely to directly  purchase divested grocery store assets after fiscal year 1996.  However,  when we account for divested assets that were initially purchased by  grocery wholesalers then, per the divestiture order, sold to other  businesses—which reflects the level of indirect participation—the decline  in the level of smaller business participation between the two time periods  is not as great.  Our discussions with FTC staff and antitrust practitioners  indicated that the decline in the level of smaller business participation in  purchasing divested assets occurred for a variety of reasons, including FTC  divestiture practices and consolidation in the grocery store industry,  specifically a significant difference in the type and size of mergers during  the 1990s.
subsections: section_title: Some Difficulties Arose Determining the Level of Small Business Participation
paragraphs: Because there were so few buyers of divested assets in the drug store,  funeral services, and gas station industries during the period, we were  unable to determine if there was a statistically significant difference in the  level of smaller business participation in purchasing these assets.  While  there were sufficient numbers of buyers of divested assets in the grocery  store industry to enable us to analyze changes in the profile of the buyers  over the 11-year period, there appeared to be no generally accepted  definition of a small grocery store business.  FTC staff, grocery industry  officials, and representatives of relevant small business associations, told  us that there was not a generally accepted standard by which one could  measure the relative size of businesses using revenues.  They  acknowledged that SBA’s definition of a small business, which ranged from  $13.5 million to $20 million in receipts from 1990 to 2000 for the grocery  store industry, might be one indicator.  However, industry members told us  that SBA's threshold for a small grocery store business is too low given the  relative size of grocery store businesses.
Because there appeared to be no generally accepted definition of a small  grocery store business, we used two approaches to determine the level of  smaller business participation in purchasing divested grocery store assets  in fiscal years 1990 through 1996 and fiscal years 1997 through 2000. First,  we analyzed the median of the average annual revenues of the buyers.   Specifically, we calculated the average annual revenues of each of the  buyers of divested grocery store assets using the buyers’ 3 years revenues  prior to their purchase of the divested assets, when available, in constant  2000 dollars.  The average annual revenues ranged from about $5 million to  about $35 billion, with 9 of 41 direct buyers having average annual revenues  greater than $15 billion.  We then computed the median of the average  annual revenues for all the buyers for the two periods and for fiscal years  1990 through 2000.  We used the overall median of the buyers’ average  annual revenues for fiscal years 1990 through 2000 as a benchmark and  determined the number of buyers in each of the periods that were below  the overall median.  We considered buyers below the overall median to be  “smaller.”  Second, we used SBA’s size standard for a small grocery store  business.  However, we used the buyers’ average annual revenues in  constant 2000 dollars before they purchased the divested assets as a proxy  for receipts, because we were unable to obtain data on the buyers’ receipts.   We also adjusted SBA’s size standards to constant 2000 dollars.  (Appendix  II provides information on the adjusted SBA size standards.)  We then  determined the number of buyers in each of the periods that were below  the adjusted SBA size standard.  Additionally, to examine changes in the  size of the buyers, we compared the median of the average annual revenues  of the buyers for the two periods.  Regardless of the approach we used, the  results were similar—there were fewer smaller buyers purchasing divested  grocery store assets after fiscal year 1996.
section_title: Smaller Businesses Were Significantly Less Likely to Directly Purchase Divested Grocery Store Assets after Fiscal Year 1996
paragraphs: Our analysis showed that significantly fewer smaller businesses directly  purchased divested assets after fiscal year 1996, the first full fiscal year  after which FTC began showing preferences for certain divestiture  approaches, such as up-front buyers, in the grocery store industry.   (Appendix II shows the results of our statistical test for the grocery store  industry.)  We calculated that the median of the average annual revenue of  41 direct buyers of divested grocery store assets, using constant 2000  dollars, was about $1.8 billion.  Figure 1 shows that using less than $1.8  billion as a benchmark for a smaller business, 80 percent (12 of 15) of the  buyers of the divested grocery store assets during fiscal years 1990 through  1996 were smaller, compared with about 31 percent (8 of 26) in the latter  period.
We also looked at the level of smaller business participation in directly  purchasing divested grocery store assets from another perspective—small  businesses as defined by SBA—and found that, when comparing the two  periods, there was a significant decline in the number of smaller businesses  that purchased divested grocery store assets.  We used buyers' revenues  before they purchased the divested assets as a proxy for receipts and  determined the extent to which buyers in both periods did or did not meet  SBA's thresholds (in 2000 constant dollars).  Our analysis showed that,  using SBA’s definition of a small grocery store business, smaller business  participation in purchasing divested grocery store assets declined  significantly from about 27 percent (4 of 15) in the period from fiscal years  1990 through 1996 to about 4 percent (1 of 26) in the latter period.
Not only did the percentage of smaller businesses purchasing divested  grocery store assets decline, but the size of businesses that purchased  divested grocery store assets grew significantly over time as well as,  according to FTC staff, the size of the parties to the acquisition and the  acquisition value.  We calculated the median of the average annual  revenues of the buyers in each period and found that the typical buyers in  the latter period were significantly larger than buyers in the earlier period.   Specifically, the median of the average annual revenues of the buyers in the  earlier period was about $89 million.  By contrast, the median of the  average annual revenues of the buyers in the latter period was about  $3.3 billion.
section_title: Wholesalers Were a Key Factor in Enabling Smaller Businesses To Purchase Divested Grocery Store Assets after Fiscal Year 1996
paragraphs: In recent years, grocery wholesalers have been a key factor in enabling  smaller businesses to purchase divested assets in the grocery store  industry—75 percent of the smaller buyers after 1996 purchased the  divested assets from wholesalers. Under this practice, some grocery  wholesalers, per the divestiture agreement reached with FTC, have  purchased divested grocery store assets directly from the merging parties  and under the order provision, in turn, sold them to grocery store  operators.  Thus, a direct buyer (the wholesaler) sells the asset(s) to  indirect buyers (the grocery store operators).  According to grocery  wholesalers we interviewed, this practice has occurred in part because  wholesalers were losing market share due to increasing consolidation in  the grocery store industry.
To determine if reselling the assets had an effect on the extent to which  smaller businesses participated in purchasing divested grocery store  assets, we performed a separate analysis.  Whereas in the analysis of direct  buyers, we considered the wholesalers as the buyers of divested assets, in  our analyses that included indirect buyers, we replaced the revenues of the  wholesalers with those of the buyers to which they resold the assets.   When we accounted for the effect of indirect buyers, there was still a  significant decline in smaller businesses participation in purchasing  divested assets after fiscal year 1996; however, the extent of the decline  was not as great.  Specifically, when the buyers who purchased the divested  assets indirectly from wholesalers were included in our analysis, the  overall median of the average annual revenues of 54 buyers of divested  grocery store assets for the fiscal years 1990 to 2000 time period was about  $208 million—about 88 percent less than the overall median (about $1.8  billion) for direct buyers.  Figure 2 shows that using less than $208 million  as a benchmark for a smaller business, about 73 percent (11 of 15) of the  buyers of the divested grocery store assets during fiscal years 1990 through  1996 were smaller buyers, compared with 41 percent (16 of 39) during  fiscal years 1997 through 2000.
We also examined the level of smaller business participation in indirectly  purchasing divested grocery store assets using SBA’s definition of a small  grocery store business.  Again, we found that even though there continued  to be a decline in the extent to which smaller businesses purchased these  assets, the decline was not as great when we included indirect buyers in the  analysis.  Specifically, using SBA's definition, as in our earlier analysis, we  found that about 27 percent (4 of 15) of the businesses that purchased  divested grocery store assets during fiscal years 1990 through 1996  (including indirect buyers) were smaller businesses.  By contrast, about 15  percent (6 of 39) of the buyers of divested assets during fiscal years 1997  through 2000 were smaller businesses.
As in the case of the direct buyers, we found that in addition to the  percentage of smaller businesses purchasing divested grocery store assets  declining between the two periods, the size of the businesses that  purchased the assets grew significantly over time.  However, the median  size of the buyers in the latter period was substantially less than that of the  direct buyers.  The median of the average annual revenues of the buyers in  the earlier period was about $78 million, compared with about $288 million  in the latter period—about 91 percent below the approximately $3.3 billion  median for the direct buyers in the latter period.
section_title: Several Factors May Have Contributed to the Decline in the Level of Smaller Business Participation as Direct Buyers of Divested Grocery Store Assets in the Latter 1990s
paragraphs: Through interviews with FTC staff, antitrust practitioners, and smaller  buyers of divested grocery stores, we identified factors that may have  contributed to the decline in the level of smaller business participation in  purchasing divested assets in the grocery store industry.  First, FTC’s clean  sweep, single buyer, and up-front buyer divestiture practices and the  merging parties’ desire to close the deal quickly may have impacted the  ability of smaller businesses to purchase divested assets.  However, FTC  staff told us that FTC’s role is to protect competition and consumers, not  particular competitors or businesses, whether large or small. Second,  growing consolidation in the grocery store industry has resulted in fewer  smaller businesses because many have either been acquired by larger  companies or have gone out of business.
section_title: FTC’s Divestiture Practices and Desire of Merging Parties to Consummate the Merger Quickly
paragraphs: According to FTC staff and antitrust practitioners, FTC’s divestiture  practices and the desire of the merging parties to consummate the merger  quickly may impact the ability of smaller buyers to purchase divested  assets.  Regarding FTC’s divestiture practices, FTC staff told us that FTC’s  preference in retail industries for clean sweep divestitures combined with  its preference for single buyers could impact the ability of smaller  businesses to purchase divested assets, particularly in larger markets  where there may be a greater number of assets to be divested, especially  where economies of scale exist.  FTC staff also said that it is easier and  quicker for the merging parties to convince FTC that a clean sweep  divestiture to a single buyer will be successful than a clean sweep  divestiture to multiple buyers within a geographic market.  They  acknowledged that a larger package of divestiture assets may make it  difficult for smaller buyers to purchase the divested assets because they  might not have the financial strength to purchase all of the assets that have  to be divested in a geographic market.
FTC staff and antitrust practitioners also told us that negotiating a  divestiture order is generally easier and quicker with a single, well- established chain as the buyer because FTC has to analyze the financial,  managerial, and operational strength of only one buyer, and the merging  parties have to negotiate with only one buyer.  Similarly, antitrust  practitioners said that FTC’s up-front buyer preference may create a bias  against smaller businesses because the merging parties cannot  consummate the merger until a viable buyer(s) has been identified,  reviewed, and provisionally approved by FTC.  Antitrust practitioners told  us that because the merging parties want to consummate the merger  quickly and it may take longer to (1) convince FTC that a smaller business  is a viable buyer and (2) negotiate with a smaller business, the merging  parties generally would prefer larger, well-established buyers.  Additionally,  the practitioners said that for these reasons they are likely to advise their  clients to select a strong, well-established buyer that would clearly be  acceptable to FTC.  They added that the cost of delaying a merger while the  merging parties are waiting for FTC to approve a buyer can be very  expensive to the merging parties because of the delay in achieving the  potential efficiencies they sought through the merger.
FTC staff and antitrust practitioners also told us that factors other than  clean sweeps, single buyers, and up-front buyers may impact the ability of  smaller buyers to purchase divested assets. For example, antitrust  practitioners said that FTC’s preference for buyers that do not already have  a presence in the geographic market as well as FTC’s definition of the  product and geographic markets may also impact the ability of smaller  businesses to purchase divested assets.  They told us that smaller  businesses interested in purchasing divested assets may be more likely to  be located in the geographic market where the assets are being divested.   According to FTC staff, if any business, large or small, interested in  purchasing the divested assets already has a significant presence in the  geographic market where the assets are being divested, it reduces the  chances of FTC approval because divesting to a market incumbent does not  replace the acquired firm and thus reduces the competitive effectiveness of  the divestiture.  Thus, according to FTC staff, FTC may not approve  proposed buyers that already have a significant presence in the geographic  market because this raises concerns about the anticompetitive effects of  the divestiture transaction, including an increase in concentration and  failure to maintain the number of market participants.  For example, in  fiscal year 1996, FTC did not approve a proposed buyer for a grocery store  in the Stop and Shop and Purity Supreme merger, because the proposed  buyer already had two stores relatively close to the store being divested.   However, FTC staff said that in certain instances smaller businesses  operating within the same geographic and product markets have been  found to be acceptable buyers.  Additionally, FTC staff and antitrust  practitioners told us that the size of the divestiture package and FTC staff’s  definition of the geographic and product markets may affect the  opportunity for smaller businesses to purchase divested assets.  They said  that the larger the geographic market, as defined by FTC, the less  opportunity there may be for smaller businesses to purchase the divested  assets.
The Food Marketing Institute (FMI) and the National Grocers Association  (NGA)—the two largest associations that represent grocers—have  submitted comments to FTC stating that FTC’s clean sweep, single buyer,  and up-front buyer divestiture practices have hindered the ability of small  businesses to purchase divested assets.  Additionally, they said that FTC’s  strong preference for buyers located outside the geographic market in  which the assets are to be divested have disadvantaged small businesses,  which are struggling to expand and keep pace with large corporations.   Several smaller buyers of divested grocery store assets also told us that  other factors, such as the merging parties’ bidding process, create  additional challenges for smaller businesses in purchasing and maintaining  the viability of divested assets.  (Appendix VII provides information on the  public comments that FTC received regarding all 31 divestiture orders  included in our review as well as the results of our discussions with several  smaller buyers of divested grocery store assets, selected associations that  represent smaller businesses, and SBA officials.)
FTC staff told us that the antitrust statutes are designed to protect  competition and consumers, not particular competitors or businesses,  whether large or small.  They also said that in several public statements,  FTC staff have noted that FTC does not have a preference in favor of large- chain buyers, or a preference against small chains, independents, or  wholesalers that will eventually spin off stores to other buyers.  For  example, in a March 2001 speech before the American Bar Association, the  then Acting Director of FTC’s Bureau of Competition said that FTC neither  favors nor disfavors any particular category of purchaser.  According to the  speech, “...the Commission’s approach to supermarket divestitures has not  precluded smaller or local grocery stores from participating as buyers  because it believes that effective competitors come in all shapes and  sizes.”  Additionally, the then Acting Director said that FTC is sensitive to  the fact that small supermarket chains often offer greater product variety  and choice than other supermarkets.  However, FTC staff told us that the  size of a possible buyer is a factor in determining the acceptability of that  buyer, but only to the extent that size affects the buyer’s financial viability  and ability to operate the divested assets competitively.
Some antitrust practitioners we interviewed also told us that they do not  perceive FTC as having a role in protecting small businesses.  Like FTC,  they said FTC’s mandate is to protect and preserve competition and  consumers, not to protect or promote small businesses.  They told us that  protecting competition and promoting small businesses are not always  completely consistent goals.
section_title: Growing Consolidation in the Grocery Store Industry
paragraphs: Growing consolidation in the grocery store industry has resulted in fewer  smaller businesses because many have either been acquired by larger  companies or have gone out of business.  An article by the U.S. Department  of Agriculture’s (USDA) Economic Research Service states that in recent  years, the U.S. food retailing industry has undergone unprecedented  consolidation and structural change through mergers, acquisitions,  divestitures, internal growth, and new competition.  Widespread  consolidation in the grocery store industry, driven by expected efficiency  gains from economies of size, has had a significant effect on the share of  total grocery stores sales accounted for by the largest food retailers.  The  concentration levels of the industry have also increased.  According to a  August 1999 American Antitrust Institute (AAI) article, in 1992, the top  five supermarket chains had 19 percent of the national market.  In 1999,  that share had increased to at least 33 percent.  According to FMI data, the  number of chain supermarkets increased from 17,460 in 1990 to 20,825 in  2000.  Over the same period, the number of independent supermarkets  declined from 13,290 to 11,005.  The Progressive Grocer 2001 annual  report, reports that market share continues to be consolidated among a  handful of traditional players, including Kroger Company; Safeway, Inc.;  Albertson’s, Inc.; and Royal Ahold.  According to the report, larger chains  will acquire smaller and mid-size independents to solidify their market  share and increase their buyer power.  However, the report also notes that  the closings of grocery stores resulting from larger chains that are rejecting  leases on older, smaller stores when they come up for renewal will afford  independents and smaller chains the chance to expand by acquiring those  stores.
section_title: FTC Has Not Measured the Impact of Its Divestiture Practices Since Announcing Changes in the Mid- 1990s
paragraphs: FTC has not systematically measured the success or failure of the  divestitures it has approved since it developed preferences for approaches  like clean sweep and up-front buyers.  In 1999, FTC reported the results of  the Bureau of Competition staff’s study of divestiture orders made final  during fiscal years 1990 through 1994 that, according to FTC staff,  confirmed the need to make the changes that FTC had made starting in the  mid-1990s.  The report was drafted by FTC’s Bureau of Competition.  Although the study had some methodological limitations, it appears to have  been instrumental in helping FTC staff better understand the divestiture  process.  Nonetheless, antitrust practitioners and representatives of the  grocery store industry have questioned key aspects of FTC's study,  including whether the approach used supported the conclusions drawn and  whether the study went far enough in measuring the impact of its  divestiture practices on buyers of divested assets and the markets in which  they operate.
subsections: section_title: FTC Staff’s Divestiture Study Was Based on Divestitures that Were Finalized in the Early 1990s and Had Some Methodological Limitations
paragraphs: To perform its study, FTC staff examined 35 divestiture orders made final  during fiscal years 1990 through 1994 to identify problems with the  divestiture process and determine whether buyers of divested assets were  able to begin operating in the relevant market relatively quickly and  maintain operations.  The study found that the acquirers of divested  assets generally were viable competitors in the markets of concern and  found, among other things, that across all orders studied  divestitures of ongoing businesses succeeded at a higher rate than  divestitures of selected assets;   parties to a potential merger that were required to divest assets  sometimes looked for buyers who were not the strongest competitors  and sometimes engaged in strategic conduct to impede the success of  the buyer;   many buyers of divested assets did not have sufficient information to  prevent mistakes in the course of their negotiations and subsequent  acquisitions, particularly where the buyers had never operated in the  industry or the to-be-divested business; and   smaller buyers succeeded at least at the same rate as larger buyers and,  therefore, should not be presumed to be less competitive buyers than  larger firms.
The study confirmed much of what FTC staff had suspected and discussed  in earlier speeches and recommended a number of consent provisions and  approaches designed to mitigate some of the problems FTC staff  identified.  According to FTC staff, the recommendations were designed  to correct the informational and bargaining imbalance that had occurred in  previous divestitures.
We were unable to fully assess the divestiture study because, according to  FTC, the nonpublic version of the study contained proprietary financial  information about the merging parties and the buyers of the divested  assets.  However, our analysis of the public version of the study showed  that it had some key limitations.  For example,   The study discussed the advantages of up-front buyers, and in speeches,  FTC staff used the study as a basis for articulating FTC’s preference for  up-front buyers.  However, the study did not provide information on the  number of up-front buyers it examined, nor does it discuss what factors  made those buyers successful.
A finding in the report is that smaller firms across all orders studied  succeeded at least at the same rate as larger firms and, therefore, should  not be presumed to be less competitive buyers than larger firms.  The  study does not define “smaller” nor does it provide information on the  industries in which the smaller businesses operated.  FTC staff told us  that the divestiture study did not use quantitative criteria for  categorizing firms as smaller or larger.  Instead, FTC staff looked at  (1) the size of buyers on a continuum of smaller revenues to larger  revenues for the sample of businesses surveyed and/or (2) whether the  firm was a single product firm, often a newly formed company,  operating in a fairly localized area, as opposed to an established,  multiproduct, highly capitalized, multinational company.  FTC staff told  us that it was clear to them which buyers were smaller and which were  larger.
The study covered divestitures to 50 buyers that were approved by FTC,  but FTC staff were only able to interview 37 of the buyers, and the study  does not provide information on the distribution of the 13 buyers  (26 percent) that did not participate in the study.  If these buyers are  mostly smaller or larger, or fall into the same industry, the results could  potentially be skewed.
The methodology for the study published in the Federal Register stated  that FTC would interview 147 third parties, such as customers,  suppliers, and trustees.  However, the final report only reports on  interviews with two third parties, both of which were trustees.   According to FTC staff, due to resource constraints, they were limited in  the number of interviews they could complete.  They told us that the  study focused on the buyers and the merging parties, and although it  would have been useful to obtain information from third parties, it  would have been costly, and would have diverted Commission resources  from pressing merger enforcement activities. Nonetheless, FTC staff  told us that in reviewing a proposed merger, they rely heavily on  information provided by third parties to determine whether a merger is  likely to result in price increases or reduction in quality or output.
FTC staff told us that they recognize that the divestiture study had  limitations.  Nevertheless, they said that the study provided them sufficient  information to adjust their approaches to working on divestiture orders.   For example, FTC staff said that they learned that buyers of divested assets  often did not know all of the assets they needed to effectively operate a  business.  As a result, FTC staff stopped relying as heavily on buyers of  divested assets to inform them of the assets that should be included in the  divestiture packages.  FTC staff said that while the divestiture study is not  the ultimate competitive analysis, it is an important step in determining  whether the divestiture orders are satisfying FTC’s mission.
section_title: Antitrust Practitioners and Representatives of the Grocery Store Industry Have Questioned Various Aspects of the Study
paragraphs: Antitrust practitioners have praised FTC for taking the initiative to do the  divestiture study, but have also questioned key aspects of the study,  including its design and methodology. For example, some antitrust  practitioners we spoke with said that FTC should be commended for  undertaking the study, but questioned whether the methodology employed  was sufficient for drawing conclusions.  They suggested that the study  should have been designed in a way to enable FTC to reach conclusions  about how the divestiture(s) impacted the availability, quality, and price of  products because these are the market factors that ultimately affect the  consumer. “…the Divestiture Study has taken on a significance, in terms of justification of Commission  policies, that was not foreseen at the time it was issued, especially since it was never  formally adopted by the Commission.  In addition, it is not clear from the description of the  Study whether the authors, in evaluating the apparent failure of a remedy, considered  whether this was consistent with the lack of a need for a remedy in the first place.” "Studies such as this would be more useful contributions to the dialogue between the  agencies and the private bar if their methodology was fully discussed and disclosed prior to  the study, and the study included the participation (with appropriate confidentiality  constraints) of outside academics and practitioners.”
Given questions that have been raised about FTC’s divestiture study, we  spoke with FTC staff about the benefits and cost of an updated, more  comprehensive study.  They acknowledged that another study might be  beneficial because FTC has not studied the effect of its recent approaches  on the viability of buyers of divested assets or on competition in the  marketplace.  Although they could not pinpoint the actual cost of doing  another study, they said that it could be labor-intensive and burdensome on  businesses.  FTC staff told us that the 1999 study was extremely labor  intensive and another study, especially one attempting to assess market  competition in each market, would require extensive resource allocations.   FTC staff said that they do not currently have resources to commit to such  a study at this time.  For example, in doing the 1999 study, FTC staff had to  first manually review all FTC actions, during the fiscal years 1990 through  1994 time period, to identify consent orders involving mergers and then,  determine which orders required divestitures.  They said that it might be  easier today because recent divestiture orders are more readily available  through FTC’s Web site.  However, our review of divestiture orders  announced for public comment during fiscal years 1990 through 2000  revealed that the Web site does not provide a way to readily identify all of  the divestiture orders FTC announced or made final each year.
Additionally, FTC staff told us that they would be concerned that such an  effort could be burdensome on businesses.  For example, they said that  they would have to rely on buyers of divested assets to obtain information  post-divestiture, and currently, buyers are not parties to divestiture orders.   Thus, currently buyers are not required to provide information to FTC post- divestiture.  In performing the 1999 study, FTC staff relied on the  cooperation of buyers to collect information for its divestiture study and,  as noted previously, 13 of the 50 buyers (26 percent) did not participate in  the study.  However, FTC is currently examining whether it should take  steps to overcome this problem.  In June 2002, FTC began holding a series  of public workshops to obtain insights into its merger remedy process.  The  workshops are designed to address, among other things, whether FTC  should require the buyers of divested assets to report on their operations of  the divested assets to permit FTC to better determine whether its remedy  provisions have achieved the objective of maintaining or restoring  competition in the relevant market.  The workshops also will consider  what any such reporting requirements should entail, how long they should  be in place, and the impact of any such obligations on potential buyers’  interest in acquiring divestiture assets.
FTC officials have frequently noted in speeches that if a merger does not  result in restored competition, the remedy is not a success.  For example,  in a March 2001 speech, the then Acting Director of the Bureau of  Competition said that consumers should not bear the risk of an inadequate  or ineffective remedy.  “A merger is forever… and, therefore, so is the harm  caused by an incomplete remedy.”  These views are consistent with the  then Chairman’s statement in a February 2000 speech: “The law is clear that  divestiture and other restructuring remedies should not be adopted unless  they are likely to restore fully the competition lost as a result of the  merger.”  He further said, “Enforcement agencies should not be expected  and would not be justified in making the same mistake over again.  If  restructuring in a particular industry and in similar circumstances has been  unsuccessful, enforcement officials have a responsibility to determine  why.”   Moreover, FTC in explaining antitrust laws has said that a merger  that lessens competition can lead to higher prices, reduced availability of  goods or services, lower quality of products, and less innovation.  Despite  this recognition, FTC has not fully evaluated whether the divestitures it has  approved have achieved its goal of maintaining or restoring competition in  the marketplace.
section_title: Conclusions
paragraphs: FTC’s mission is, in part, to prevent business practices that are  anticompetitive, deceptive, or unfair to consumers.  FTC attempts to  achieve its mission through preventing anticompetitive mergers from  taking place.  FTC’s approaches to merger remedies have evolved over  time.  In fiscal year 1996, based on past experiences and preliminary  findings of its divestiture study, FTC developed preferences for how to  structure divestitures and began to modify its divestiture approaches.  FTC  has not studied the effect of its recent approaches on the viability of buyers  of divested assets or on competition in the marketplace.  For example, in  the grocery store industry, clean sweep divestitures, single buyers, and up- front buyers have been used with greater frequency in the late 1990s—a  period not covered in FTC’s 1999 divestiture study.  Because FTC has not  systematically reviewed divestiture orders made final after fiscal year 1994,  FTC does not know how these practices have impacted the viability of the  buyers of divested assets or prices and/or innovation in the marketplace— key factors FTC uses to measure competition.  Consequently, FTC cannot  state that recent divestiture orders have, among other things, maintained or  restored competition in the affected markets, or that smaller buyers  continue to be as competitive as their larger counterparts in operating the  divested assets.
Although the cost of doing a study of its recent divestiture orders could be  considerable, such a study would give FTC the opportunity to develop and  design a methodology to (1) overcome some of the limitations encountered  during the earlier study; (2) provide greater insights into the impact of its  divestiture preferences on potential buyers, including smaller businesses;  and (3) better examine the short and long-term effects of various  divestiture preferences on the markets in which divestitures take place.   FTC staff acknowledged the benefit of conducting a more rigorous and  comprehensive study to determine whether recent merger remedies are  achieving their intent—to adequately maintain or restore competition and  protect consumers so that consumers have the benefit of low prices and  good product variety.  Similarly, antitrust practitioners have said that  collecting relevant economic data and including the data within the scope  of future studies would place FTC in a better position to reach firm  conclusions regarding the success or failure of its divestiture practices and  to shape future divestiture orders.
We recognize the difficulties and costs inherent in conducting an evaluation  that assesses the impact of FTC’s divestiture practices on the marketplace.   However, the more that economic data are brought to bear on the questions  of how FTC’s divestiture practices impact the marketplace, including  smaller businesses, the more confident FTC can be that divestitures are  having the intended effect of maintaining or restoring competition.  We also  recognize that the need for and benefits of conducting the analysis must be  balanced against the costs of collecting the data as well as balanced against  any logistical and legal implications.  FTC could not provide us with an  estimate of the costs to perform a more comprehensive divestiture study,  nor could we estimate the costs.  While we are aware that the costs could  be significant, we believe that the lack of a more rigorous and  comprehensive study places FTC at risk of not being in the position to fully  understand the effects of its divestiture practices, including possible  negative effects, on competition in the marketplace—a risk that FTC  officials have said that FTC cannot afford to take.
section_title: Recommendation
paragraphs: To ensure that FTC has complete and up-to-date information on the  effectiveness of divestitures in industries in the retail sector, we  recommend that the Chairman of FTC direct the Bureaus of Competition  and Economics to undertake a study of the impact of divestiture orders  made final since fiscal year 1994 that require divestitures in the retail sector  on (1) the viability of buyers of divested assets and (2) competition in the  marketplace.  If the findings show that FTC's intended results have not  been achieved, we further recommend that FTC explore expanding the  study to include divestiture orders for other sectors of the economy that  have been impacted by changes to FTC divestiture practices during the  mid-1990s.
section_title: Agency Comments and Our Evaluation
paragraphs: In commenting on our report, FTC said that the report adds important  information about the Commission’s role in enforcing antitrust laws related  to mergers and should lead to further improvement in the Commission’s  merger enforcement efforts.  In its comments, which are included as  appendix VIII, FTC said that our recommendation is consistent with the  Commission’s own objectives and its most recent Government  Performance and Results Act report, which states that the Commission  plans to “study and evaluate the remedies used in past antitrust cases,  particularly divestiture orders used to resolve merger cases.”  FTC noted  that it currently has two related studies underway concerning hospital and  petroleum mergers.
FTC also provided additional information on the history of the  Commission’s divestiture and remedy practices.  This information  describes the impetus for Congress’ passage of the HSR Act and reiterated  that FTC is taking certain actions to seek public input on merger remedy  issues, as discussed in our report.  Additionally, FTC previously provided  technical comments, which have been incorporated in this report where  appropriate.
We are sending copies of this report to the Chairman of the Federal Trade  Commission and interested congressional committees. We will also provide  copies to others on request. In addition, the report will be available at no  charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  John F. Mortin at 202-512-5727 or me at 202-512-4636.
section_title: Objectives, Scope, and Methodology
paragraphs: Our objectives were to describe (1) the history of Federal Trade  Commission’s (FTC) clean sweep divestiture, single buyer, and up-front  buyer practices within the context of FTC’s overall merger remedies, and  the circumstances under which these practices have been used; (2) the  extent of FTC’s use of these practices in the grocery store, drug store,  funeral services, and gas station industries; (3) the level of small business  participation in purchasing divested assets in the four industries and the  factors that may explain the level of small business participation; and  (4) FTC’s efforts to gauge the success or failure of these divestiture  practices and the impact of these practices on the marketplace, especially  small businesses.  We also obtained information on the nature of comments  FTC received pertinent to these practices in the four industries as well as  comments on how they impacted the ability of small businesses to  purchase divested assets.  As agreed with your staff, we focused on  divestitures required by consent orders that FTC announced for public  comment between fiscal years 1990 through 2000 for four industries— grocery store, drug store, funeral services, and gas station industries—that  sell products and/or services directly to consumers. We focused on  proposed consent orders that were announced for public comment during  fiscal years 1990 through 2000, rather than consent orders made final  during this period, because in most cases, at the point that FTC accepts a  proposed consent order for public comment, the parties are allowed to  consummate their merger.  Our work was limited to publicly available  information because, according to FTC, under the Hart-Scott-Rodino Act  (HSR Act) of 1976, FTC is prohibited from disclosing information provided  by parties to merger transactions.
To address these objectives, we performed our work at FTC headquarters  in Washington, D.C.  We also contacted officials from various associations  that represent or deal with small and/or independent businesses—the  National Grocers Association (NGA), the Food Marketing Institute (FMI),  the National Community Pharmacists Association (NCPA), the National  Funeral Directors Association (NFDA), the Petroleum Marketers  Association of America (PMAA), the National Federation of Independent  Business (NFIB), the National Business Association (NBA), the National  Small Business United (NSBU), the SCORE Association (SCORE), and the  U.S. Chamber of Commerce.  In addition, we obtained and reviewed  relevant documents prepared by and discussed FTC’s divestiture practices  with antitrust practitioners—attorneys and economists in private practice  who specialize in antitrust issues—academicians and officials with the  Small Business Administration (SBA).
To address the first objective concerning the history of FTC’s clean sweep  divestiture, single buyer, and up-front buyer practices within the context of  FTC’s overall merger remedies, and the circumstances under which these  practices have been used, we met with staff from FTC’s Bureaus of  Competition and Economics and its Office of General Counsel and  interviewed a former FTC Commissioner and former staff.  We also  reviewed relevant FTC public speeches, articles, and documents prepared  by current and former FTC Commissioners and staff between the years  1995 and 2002 pertaining to FTC’s divestiture practices.  Furthermore, we  obtained and reviewed relevant documents prepared by and talked with  antitrust practitioners, academicians, associations that represent small  and/or independent businesses, and officials from SBA to obtain their  views of FTC’s divestiture practices. In addition, we met with an official of  the Department of Justice’s (DOJ) Antitrust Division to obtain general  information on DOJ’s merger remedies.
To address the second objective concerning the extent of FTC’s use of the  clean sweep divestiture, single buyer, and up-front buyer practices in the  grocery store, drug store, funeral services, and gas station industries, we  analyzed FTC consent orders that required a divestiture(s), also called  divestiture orders, that were announced for public comment during fiscal  years 1990 through 2000.  Because FTC did not have a publicly available  listing of the divestiture orders announced for public comment during  fiscal years 1990 through 2000, we reviewed several sources of information.   To identify divestiture orders FTC announced for public comment during  fiscal years 1990 through 1995, we reviewed FTC decision books for  calendar years 1989 through 1995 to identify all divestiture orders issued by  FTC during that period.  We then reviewed FTC press statements  announcing each of the proposed divestiture orders to determine the fiscal  year in which FTC announced the order.  To identify divestiture orders FTC  announced for public comment during fiscal years 1996 through 2000, we  reviewed a summary of FTC’s Bureau of Competition activity for fiscal year  1996 through March 31, 2000.  We then reviewed FTC monthly actions  announced for public comment and posted on FTC’s Web site for the period  April 1, 2000, through September 30, 2000, to identify the divestiture orders  FTC announced for public comment during April 2000 through September  2000.  Finally, we reviewed FTC’s HSR Act annual reports to Congress for  fiscal years 1990 through 2000.
After we identified the 153 divestiture orders that were announced for  public comment during fiscal years 1990 through 2000, we reviewed them  to determine which ones required divestitures in the grocery store, drug  store, funeral services, and gas station industries.  We determined that  during the 11-year period, FTC announced for public comment 33  divestiture orders that required divestitures in the four industries.   However, we eliminated two funeral services divestiture orders from our  review because, according to FTC staff, as of June 30, 2002, the divestitures  had not taken place.
After we identified the divestiture orders for the four industries, we used a  structured data collection instrument to gather information from each of  the 31 divestiture orders and related documents, such as press releases  announcing a proposed divestiture order, complaints, analyses to aid public  comment, final divestiture orders, modifications to the orders, divestiture  applications, and FTC letters approving divestiture applications.   Specifically, we collected information on, among other things, (1) the date  FTC announced the divestiture order for public comment; (2) the  geographic market in which FTC required a divestiture; (3) the buyer(s) of  the divested assets in each geographic market, both the “direct” buyers— buyers that purchased the divested assets directly from the merging  parties—and the indirect buyers—third parties that purchased the assets  from direct buyers of divested assets, generally a wholesaler; (4) whether  the buyers were identified in the divestiture order at the time FTC  announced it for public comment; and (5) whether the divestiture order  required a single buyer and/or an up-front buyer.  Because FTC's divestiture  orders and related documents typically do not indicate whether a  divestiture is a clean sweep, we relied on clean sweep data provided by  FTC.
Because FTC speeches about its merger remedies indicated that FTC began  to make changes in its divestiture practices during fiscal year 1996, we  focused our analysis of the use of clean sweeps, single buyers, and up-front  buyers on two periods—the period from fiscal years 1990 through 1995,  before FTC started to make these changes, and fiscal years 1996 through  2000, the period during which FTC staff announced that FTC had begun to  make changes.  We determined the extent to which these practices were  used in each of the two periods for the 31 divestiture orders included in our  review.  Additionally, because according to FTC staff each industry  operates differently, we performed separate analyses for each of the four  industries.
To address the third objective concerning the level of small business  participation in purchasing divested assets in the four industries and the  factors that may explain the level of small business participation, we  obtained revenue data for the buyers of the divested assets, both the direct  and indirect buyers.  Because according to FTC staff, due to confidentiality  restrictions, they could not provide us with the revenue data for the buyers  of the divested assets, we obtained the revenue data from several sources.   For publicly held buyers, we obtained the data from public sources, such as  the Securities and Exchange Commission filings and Valueline Magazine.   For privately held buyers for which we could not locate the data through  publicly available sources, we contacted the buyers directly to obtain the  data.  When possible, we obtained the revenue data for the 3 most recent  completed fiscal years prior to the buyers being identified in the proposed  divestiture orders or in the divestiture applications.  If revenue data were  not available for the 3 most recent completed fiscal years, we obtained the  data for the prior 2 years or year.  For the direct buyer analyses, we were  not able to obtain revenue data for 3 of the buyers of divested grocery store  assets, and for the analyses that included direct and indirect buyers, we  were not able to obtain revenue data for 5 of the buyers.
Because there were so few buyers of divested assets in the drug store,  funeral services, and gas station industries during the period, we limited  our analysis to the grocery store industry. According to FTC staff, SBA  officials, grocery industry officials, and representatives of relevant small  business associations, there is no generally accepted standard by which  one could measure the relative size of businesses using revenues. They  acknowledged that SBA's definition of a small business, which ranged from  $13.5 million to $20 million in receipts from 1990 through 2000 for the  grocery store industry, might be one indicator.  However, they told us that  SBA's threshold for a small grocery store business is too low given the  relative size of grocery store businesses.
Because there appeared to be no generally accepted definition of a small  grocery store business, we used two approaches to determine the level of  smaller business participation in purchasing divested grocery store assets  in fiscal years 1990 through 1996 and fiscal years 1997 through 2000.  We  used these two time periods for the size of buyers analyses, instead of the  fiscal years 1990 through 1995 and fiscal years 1996 through 2000 time  periods that we used in our analyses of FTC’s divestiture practices,  primarily because fiscal year 1997 is the first full fiscal year after FTC began  altering its approach to divestitures. Additionally, there were too few  observations in the fiscal years 1990 through 1995 period.  Our analyses of  the size of the buyers is based on the dates of the merging parties’  divestiture applications or, in the case of up-front buyers, the dates of the  proposed divestiture orders—generally the point at which FTC receives the  revenue data for the proposed buyers to include in its review of the viability  of the proposed buyers.  Because FTC did not start to use up-front buyers  in grocery store divestitures until fiscal year 1996, divestitures in the earlier  period took much longer to occur.  Additionally, fiscal year 1997 is the first  full fiscal year after FTC began altering its approach to divestitures.
In regard to the two approaches we used to determine the level of smaller  business participation in purchasing divested assets, we first analyzed the  median of the average annual revenues of the buyers.  Specifically, we  calculated the average annual revenues of each of the buyers of divested  grocery store assets using the buyers’ 3 years revenues, when available,  prior to their purchase of the divested assets in constant 2000 dollars.  We  then computed the median of the average annual revenues for all the  buyers for the two periods and for fiscal years 1990 through 2000.  We used  the overall median of the buyers’ average annual revenues for fiscal years  1990 through 2000 as a benchmark and determined the number of buyers in  each of the periods that were below the overall median.  We considered  buyers below the overall median to be “smaller.”
Second, we used SBA’s size standard for a small grocery store business at  the time the buyers of divested assets were either identified in the  divestiture order or in the divestiture application to determine the extent to  which buyers in both periods did or did not meet SBA's thresholds.   However, we used the buyers’ average annual revenues in constant 2000  dollars before they purchased the divested assets as a proxy for receipts,  because we were unable to obtain data on the buyers’ receipts.  We also  adjusted SBA’s size standards to constant 2000 dollars.  We then determined  if there was a statistically significant change in the number of buyers that  met the adjusted SBA thresholds for the two periods.
Additionally, to examine changes in the size of the buyers, we compared  the median of the average annual revenues of the buyers for the two  periods and determined whether differences in the medians were  statistically significant.  (Appendix II provides more detailed information  on our approaches for determining the level of smaller business  participation in purchasing divested assets in the grocery store industry.)
As part of our work addressing the factors that may explain the level of  small business participation in purchasing divested assets in the four retail  industries included in our review, we interviewed staff from FTC’s Bureaus  of Competition and Economics and its Office of General Counsel.  We also  interviewed antitrust practitioners and academicians to obtain their views  on factors that may explain a decline in the level of small business  participation in purchasing divested assets.  In addition, we reviewed  relevant articles to determine factors that may explain the level of small  business participation.  Unless provided in a public comment, we could not  obtain information on small businesses that may have attempted to  purchase divested assets but were not selected or approved as a buyer.
To address the fourth objective concerning FTC’s efforts to gauge the  success or failure of its divestiture approaches and the impact of its  approaches on the marketplace, especially small businesses, we reviewed  FTC’s 1999 Divestiture Study and interviewed and reviewed relevant  speeches and documents prepared by current and former FTC  Commissioners and staff and antitrust practitioners.  Specifically, we  reviewed the study to determine whether it was methodologically sound  and contextually sophisticated.  We also interviewed and reviewed  documents prepared by economists who consult merging parties and  academic experts to obtain their views on FTC’s 1999 Divestiture Study and  how FTC should measure the success of its divestiture approaches.
To obtain information on the nature of comments FTC received pertinent to  its clean sweep divestiture, single buyer, and up-front buyer practices and  how these practices impact the ability of small businesses to purchase  divested assets, we reviewed FTC public case files for the 31 divestiture  orders included in our review to identify the public comments FTC  received concerning the divestiture orders and divestiture applications.   FTC staff told us that in some cases, the commenter requests that their  comments be kept confidential.  FTC keeps the confidential comments in  nonpublic files.  We did not review the nonpublic files nor did we verify that  the public files contained all of the nonconfidential public comments  received by FTC.  We relied on FTC to provide us with the information.  We  reviewed each of the 1,902 public comments contained in the files and,  when available, FTC’s responses to the comments to determine if they  related to the ability of small businesses to purchase divested assets due to  FTC’s divestiture practices.
In addition, we interviewed FTC staff to obtain information on their  process for obtaining public comments and to determine whether FTC had  received any complaints, outside of the public comment process,  concerning its clean sweep divestiture, single buyer, and up-front buyer  practices and how these practices impact the ability of small businesses to  purchase divested assets. To determine if associations that represent small  and independent businesses had concerns related to the impact of FTC’s  divestiture practices on the ability of small businesses to purchase divested  assets, we also interviewed representatives from 10 associations whose  membership in general, consists of the following:   NGA is the national trade association representing retail and wholesale  grocers that comprise the independent sector of the food distribution  industry.
FMI conducts programs in research, education, industry relations, and  public affairs on behalf of 2,300 food retailers and wholesalers in the  United States and around the world.  Its retail membership comprises of  independent supermarkets, large multistore chains, and regional firms.
NCPA represents the pharmacist owners, managers, and employees of  nearly 25,000 independent community pharmacies across the United  States. The independent community pharmacists are small business  entrepreneurs and multifaceted health care providers.
NFDA provides advocacy, education, information, products, programs,  and services to help funeral directors enhance the quality of service to  families.  Ninety-three percent of its members are small business  owners/operators with an average of four full-time employees.
PMAA is a federation of 42 state and regional trade associations  representing approximately 7,850 independent petroleum marketers  nationwide.  It seeks to further the common business interest of the  petroleum marketing industry.
NFIB is an advocacy organization representing 600,000 small and  independent businesses.  Its membership includes independent  professional, retailers, service providers, manufacturers, farmers, and  wholesalers.
NBA is a nonprofit organization that supports and educates the small  business community and the self-employed.
NSBU is an advocacy organization representing over 65,000 U.S.  members.  It informs small business owners about legislative and  regulatory issues that affect them.
The U.S. Chamber of Commerce is a nonprofit business federation  representing businesses of all sizes.  More than 96 percent of its  members are small businesses with 100 or fewer employees.
The SCORE Association is a national, nonprofit association with 11,500  volunteer members and 389 chapters throughout the United States and  its territories.  It provides general business advice to small businesses  and to persons interested in starting a business.
We also reviewed comments provided to FTC for its June 2002 workshop  on merger remedies.  In addition, we met with officials from SBA’s Office  of Advocacy to determine if the agency has received any complaints from  small businesses about their ability to purchase divested assets due to  FTC’s divestiture practices.  Finally, while obtaining revenue data from  buyers of divested assets, representatives of 11 grocery store businesses  with average annual revenues of $200 million or less provided anecdotal  comments about the challenges that smaller businesses face in purchasing  divested assets and maintaining their viability.
We did our work between April 2001 and August 2002 in accordance with  generally accepted government auditing standards.
section_title: GAO Methodology to Determine the Level of Smaller Business Participation in Purchasing Divested Grocery Store Assets
paragraphs: As discussed in appendix I, to address our objective to determine the level  of smaller business participation in purchasing divested assets in the  grocery store, drug store, funeral services, and gas station industries, we  collected publicly available data on the revenue of buyers of divested  assets, both the direct and indirect buyers, for the four industries and,  when public data were not available, from the buyers of divested assets.   We did not have enough buyers in the drug store, funeral services, and gas  station industries to analyze statistically the differences in the level of small  business participation in purchasing divested assets in these industries  from fiscal years 1990 through 2000. Therefore, we limited our analysis to  the grocery store industry.
We used two approaches to determine the level of smaller business  participation in purchasing divested grocery store assets in fiscal years  1990 through 1996 and fiscal years 1997 through 2000.  The analysis was  done using these two time periods primarily because fiscal year 1997 was  the first full fiscal year after FTC began altering its approach to divestitures  and began increasingly using clean sweep, single buyer, and up-front buyer  divestiture practices in the grocery store industry—practices that may  impact the level of smaller business participation in purchasing divested  assets. We did our analysis for the direct and indirect buyers of divested  grocery store assets.
First, we analyzed the median of the average annual revenues of the buyers.   Specifically, we calculated the average annual revenues of each of the  buyers of divested grocery store assets using the 3 years revenues prior to  the purchase of the divested assets, when available, in constant 2000  dollars. We then computed the overall median of the average annual  revenues for all the buyers for fiscal years 1990 through 2000. Using the  overall median of the buyers’ average annual revenues for fiscal years 1990  through 2000 as a benchmark, we determined the number of buyers in each  of the two periods—fiscal years 1990 through 1996 and fiscal years 1997  through 2000—that were below the overall median.  We considered buyers  with average annual revenues below the overall median to be “smaller.”
To determine if the changes in the level of smaller business participation in  purchasing the divested assets in the two time periods were statistically  significant, we used the Fisher Exact test (in MegaStat, by J.B. Orris, Butler  University), which compares the percentage of smaller buyers in each time  period.  The results, presented in table 4, indicate that the percentage of  smaller buyers FTC approved to purchase divested assets in the grocery  industry during fiscal years 1997 through 2000 was significantly less than  the percentage of smaller buyer approved during fiscal years 1990 through  1996, when smaller businesses were both direct buyers and indirect buyers  of divested grocery store assets.
Second, we used the Small Business Administration’s (SBA) size standard  for a small grocery store business to identify smaller buyers.  We used the  buyers’ average annual revenues in constant 2000 dollars before they  purchased the divested assets as a proxy for receipts, because we were  unable to obtain data on the buyers’ receipts.  We also adjusted SBA’s size  standard to constant 2000 dollars.  Table 5 shows SBA’s size standard in  current and in constant 2000 dollars for each year for the fiscal years 1990  through 2000 time period.  We then determined the number of direct and  indirect buyers of divested grocery store assets in each of the two periods  that were below the adjusted SBA size standard for the grocery store  industry.  The results, presented in table 6, indicate that the percentage of  smaller buyers FTC approved to purchase divested assets in the grocery  industry during fiscal years 1997 through 2000 was significantly less than  the percentage of smaller buyer approved during fiscal years 1990 through  1996 when smaller businesses were both direct and indirect buyers of  divested grocery store assets.
Additionally, to examine changes in the size of the buyers, for both the  direct and the indirect buyers, we calculated the overall medians of the  average annual revenues for fiscal years 1990 through 1996 and fiscal years  1997 through 2000. We then compared the overall medians of the annual  revenues of the buyers for the two time periods.  To determine if the  changes in the sizes of the buyers of the divested assets in the two time  periods were statistically significant, we used the Wilcoxon-Mann/Whitney  test for two independent samples (in MegaStat, by J.B. Orris, Butler  University), which compares the locations (medians) of two independent  samples.  The results, presented in table 7, indicate that the sizes of the  buyers have increased significantly from the fiscal years 1990 through 1996  to fiscal years 1997 through 2000, for both the direct and indirect buyers.
section_title: FTC Divestiture Orders in the Grocery Store, Drug Store, Funeral Services, and Gas Station Industries, Fiscal Years 1990 through 2000
paragraphs: Product market(s)
Retail sale of food and grocery  items in supermarkets.
The Vons Companies, Inc. &  Williams Bros. Markets, Inc.
Retail sale and distribution of food  and grocery items in supermarkets.
Red Apple Companies, Inc. +  John A. Catsimatidis +  Supermarket Acquisition Corp. +  Designcraft Industries, Inc. &  Sloan’s Supermarkets, Inc.
Retail sale of food and grocery  products in supermarkets.
Retail sale of food and grocery  products in supermarkets.
Schnuck Markets, Inc. & National  Holdings, Inc.
Retail sale of food and grocery  products in supermarkets.
Schwegmann Giant Super  Markets, Inc. & National Holdings,  Inc.
Retail sale of food and grocery  products in supermarkets.
The Stop and Shop Companies,  Inc. & Purity Supreme, Inc.
Retail sale of food and grocery  products in supermarkets.
Koninklijke Ahold nv + Ahold  USA, Inc. & The Stop & Shop  Companies, Inc.
Retail sale of food and grocery  products in supermarkets.
Jitney-Jungle Stores of America,  Inc. + Delta Acquisition  Corporation & Delchamps, Inc.
Retail sale of food and grocery  products in supermarkets.
Albertson’s, Inc. + Locomotive  Acquisition Corporation & Buttrey  Food and Drug Store Company,  Inc.
Retail sale of food and grocery  products in supermarkets.
Koninklijke Ahold nv & Giant Food  Inc.
Retail sale of food and grocery  products in supermarkets.
The Kroger Co. & Fred Meyer,  Inc.
Retail sale of food and grocery  products in supermarkets.
Retail sale of food and grocery  products in supermarkets.
Product market(s)
Shaw’s Supermarkets, Inc. + J  Sainsbury plc & Star Markets  Holdings, Inc.
Retail sale of food and grocery  products in supermarkets.
The Kroger Co. & The John C.  Groub Company, Inc.
Retail sale of food and grocery  products in supermarkets.
Delhaize America, Inc. (Food  Lion) + Etablissements Delhaize  Freres et Cie "Le Lion" S.A. &  Hannaford Bros. Co.
Retail sale of food and grocery  products in supermarkets.
Revco D.S., Inc. & Hook-SupeRx,  Inc.
Sale of prescription drugs in retail  stores.
Sale of prescription drugs in retail  stores.
Rite Aid Corporation &  LaVerdiere’s Enterprises, Inc.
Sale of prescription drugs in retail  stores.
Retail sale of pharmacy services to  third-party payors.
CVS Corporation & Revco D.S.,  Inc.
Retail sale of pharmacy services to  third-party payors.
Sentinel Group, Inc.
Provision of funeral services.
Service Corporation International  & Sentinel Group, Inc.
Provision of funeral services.
Provision of funerals.
Provision of funerals and provision  of perpetual care cemetery  services.
Provision of funerals, the provision  of perpetual care cemetery  services, and the provision of  crematory services.
Product market(s)
The Loewen Group Inc. + Loewen  Group International, Inc. & Garza  Memorial Funeral Home, Inc. +  Thomae-Garza Funeral Directors,  Inc. (Texas)
Provision of funerals.
Funeral services; cemetery  services.
Shell Oil Co. & Texaco Inc.
Refining, transportation,  terminaling, wholesale sales, and  retail sales of conventional  unleaded gasoline, CARB-II  gasoline; diesel fuel, kerosene jet  fuel, and asphalt; and the  transportation of undiluted heavy  crude oil to the San Francisco, Cal.  area.
Terminaling of gasoline and other  light petroleum products; wholesale  sale of gasoline.
Marketing of motor gasoline;  refining and marketing of CARB  gasoline; bidding for and refining of  jet fuel for the U.S. Navy;  terminaling of gasoline and other  light petroleum products; pipeline  transportation of light petroleum  products; pipeline transportation of  crude oil; refining and marketing of  paraffinic base oil; production and  sale of jet turbine oil.
Excludes two divestiture orders in the funeral services industry.  The Service Corporation International  and LaGrone divestiture order (C-3959; 981-0108) announced for public comment on May 18, 2000,  required a divestiture of a funeral home only if the corporation acquired a particular funeral home.  As  of June 30, 2002, the corporation had not acquired the funeral home; therefore, it had no obligation to  divest the funeral home. The Loewen Group Inc., and Loewen Group International, Inc., and Heritage  Family Funeral Services, Inc., divestiture order (C-3678; 931-0084) announced for public comment on  May 14, 1996, required a divestiture of a funeral home.  As of June 30, 2002, the merger had not taken  place; therefore, it had no obligation to divest the funeral home.
section_title: Overview of FTC’s Merger Review and Merger Remedy Processes
subsections: section_title: Merger Review
paragraphs: The Hart-Scott-Rodino Act (HSR Act) of 1976 reviews usually begin with  the parties filing for a proposed merger or acquisition.  The premerger  notification provisions of the HSR Act require companies exceeding certain  thresholds of company size and value of the transaction to notify the  Federal Trade Commission (FTC) and the Department of Justice’s (DOJ)  Antitrust Division of the proposed merger transaction, submit documents  and other information to the agencies concerning the transaction, and  refrain from consummating the transaction until a specified waiting period  has expired or their request for early termination of the waiting period is  granted by the appropriate antitrust enforcement agency.
Table 8 shows that the number of transactions reported has more than  doubled from 2,262 in fiscal year 1990 to 4,926 in fiscal year 2000, and the  percent of early terminations granted has ranged from 65.8 percent to  81.3 percent over the same time period.  In fiscal 2001, however, after the  filing thresholds and filing fees were raised, there were only 2,376 filings.   The HSR Act was amended in late 2000 to significantly increase the filing  thresholds.
FTC and the Antitrust Division also may become aware of mergers that are  not subject to HSR Act requirements but that are potentially  anticompetitive, using techniques such as (1) monitoring the trade press  and Internet resources; (2) responding to and following up on case leads  from congressional offices, other executive branch agencies, and state and  local governments; and (3) encouraging consumers, businesses, and the  bar to notify the FTC and the Antitrust Division of possibly anticompetitive  mergers. FTC’s Performance Plan for fiscal years 2002 through 2003 states  that after the reporting thresholds were increased on February 1, 2001, the  FTC began to devote more effort to identifying mergers that may harm (or  have harmed) competition but are not subject to HSR Act requirements.
subsections: section_title: Reporting Requirements and FTC’s Review of HSR Act Filings
paragraphs: There are three tests, all of which must be met, in order for a transaction to  be reportable. The first test is the commerce test, which requires that  either the acquiring party or the acquired party must be engaged in  commerce or in any activity affecting interstate commerce, as defined by  Section 1 of the Clayton Act.  The second test is the size-of-person test,  which is based on the annual sales or assets of the merging parties.  For the  period we reviewed, one party to the transaction had to have annual sales  or assets of at least $100 million and the other party of at least $10 million.   The third test is the size-of-transaction test.  Under this test, for the period  we reviewed, as a result of such acquisition, the acquiring party had to hold  (1) voting securities or assets worth in the aggregate more than $15 million  or (2) voting securities that confer control (50 or more percent) of an issuer  with annual sales of $25 million or more.
FTC has 30 days (15 days for cash tender offers and bankruptcy filings)  from the date the filing for the proposed acquisition is accepted to review  the filing and to determine whether to seek additional information and  documents from the merging parties and thereby extend the waiting period  to enable further review.  If FTC’s initial review does not indicate a need  for further investigation, the merging parties can consummate the merger  at the end of the waiting period, or when their request for early termination  has been granted.  If FTC’s initial review indicates a need for further review,  a second request may be issued to the parties.  A second request extends  the waiting period for an additional 30 days (20 days prior to February 1,  2001, and 10 days for cash tender offers) after the parties have substantially  complied with the request.
The Assistant Directors in the Bureau of Competition offices have the  authority to request clearance to investigate a merger under the FTC-DOJ  liaison agreement and to open an initial phase investigation, even before  an HSR Act filing is actually received.  Obtaining clearance to investigate  and open an initial phase investigation allows FTC staff to contact third  parties as well as the parties to the merger.  The Bureau Director has the  authority to authorize a full phase investigation and to approve or reject  staff’s recommendations to the FTC to authorize the use of compulsory  process.  The Commissioner assigned to the matter must approve the  issuance of particular subpoenas to the merging parties or to others.  While  the full Commission acts on recommendations to authorize compulsory  process, the Chairman approves, rejects, or modifies staff’s second request  recommendations as approved by the Bureau Director.
After FTC issues its second request to the merging parties, the parties  begin assembling their responses.  In the meanwhile, FTC staff are to  employ other appropriate investigative techniques to obtain additional  information relevant to determining the legality of the transaction and to  evaluate the possible effects of the proposed transaction, such as concerns  of third parties that may be affected by the merger.  The third parties may  include, among others, competitors, customers, and suppliers.  In addition,  when appropriate, staff may consult with state attorneys general, other U.S.  governmental officials, and foreign antiturst authorities.  When the parties  comply with the second requests by submitting their responses to FTC, a  second statutory waiting period is triggered.  During that time, FTC staff  are to review the material submitted by the parties, continue assembling  third-party information, and complete staff’s evaluation and  recommendations to FTC on whether enforcement action is warranted.   According to FTC staff, parties often agree to extend the statutory time  limits for FTC action to permit settlement negotiations.  Antitrust  practitioners and FTC staff told us that the merger investigation work  generally is done with both the parties and FTC preparing for potential  litigation.  Table 9 shows the number of adjusted HSR Act transactions in  which a second request could have been issued and the number of second  requests issued by the FTC and the DOJ for fiscal years 1990 through  2000.
According to FTC staff, generally at least two conditions are necessary for  a merger to have a likely anticompetitive effect.  The market must be  substantially concentrated after the merger, with the merger substantially  increasing concentration, and it must be difficult for new firms to enter the  market in the near-term to provide effective competition.  The majority of  mergers that raise antitrust concerns are horizontal mergers.  According to  FTC staff and Antitrust Division officials, the joint Horizontal Merger  Guidelines accurately outline how the agencies generally conduct their  analysis of proposed mergers.  The guidelines were originally developed by  DOJ in 1968 and were updated in 1982 when FTC and DOJ issued separate  statements and again in 1984 by the DOJ.  The DOJ and the FTC issued joint  Horizontal Merger Guidelines in 1992.  In 1997, the agencies amended and  expanded the efficiencies section of the guidelines. The unifying theme  of the guidelines is that mergers should not be permitted to create or  enhance market power or facilitate its exercise.  The guidelines define a  seller’s market power as the ability to profitably maintain selling prices  above competitive levels for a significant period of time.  Similarly, a  buyer’s market power is defined as the ability to profitably maintain buying  prices below competitive levels for a significant period of time.
section_title: FTC’s Analysis of Proposed Mergers in Certain Retail Industries
paragraphs: The Horizontal Merger Guidelines outline the five-step analytical process  the FTC and the Antitrust Division use to determine whether a merger is  likely to substantially lessen competition and, ultimately, whether to  challenge a merger.  FTC staff are to: (1) define the relevant product market  and geographic market, identify the market participants, assign market  shares, and assess whether increased market concentration from the  proposed merger raises concern about potential adverse competitive  effects, that is, increase in prices or a decrease in quality or output;  (2) assess the potential competitive effects of the proposed merger, and the  factors in addition to market concentration relevant to each; (3) assess  whether entry into the market would be timely, likely, and sufficient either  to deter or to counteract the competitive effects of concern; (4) assess any  efficiency gains that cannot be reasonably achieved by the parties absent  the proposed merger; and (5) if the parties have raised the “failing firm” as  an affirmative defense, determine whether, but for the merger, either party  to the transaction would be likely to fail and result in its assets exiting the  market.
According to FTC staff, while the analytical framework for merger analysis  is generally the same regardless of the industry in which the merger is  taking place, the particular facts of each merger are unique and outcome  determinative.  FTC staff told us that investigations are extraordinarily fact- specific.  For example, supermarkets constitute a differentiated product  market.  No two supermarkets or chains are the same.  Each store sells  similar or the same products, but each store competes differently on price,  level of service, and has different direct competitors.  Similarly, FTC staff  told us that the size of a geographic market also varies based on the facts of  the case and the location of the merging parties’ and competitors’ assets.
section_title: Merger Remedies
paragraphs: Once it is determined that a merger is likely to be anticompetitive, FTC may  take action designed to prevent an anticompetitive result from a proposed  merger by: (1) conducting successful litigation to block the merger;  (2) negotiating a settlement to resolve anticompetitive aspects of the  merger while allowing the underlying transaction to go forward; or  (3) identifying antitrust concerns sufficient to cause the parties to abandon  the transaction without court action. As FTC staff are reviewing the  transaction, they are to invite the merging parties to discuss the  competitive problem(s) and potential remedies to address the problem(s).
FTC may decide that no remedy, short of blocking the transaction, will fully  and effectively resolve the competitive concerns.  FTC may also decide that  to resolve the competitive concerns one of the merging parties must divest  all of its assets in a single geographic market, or that a partial divestiture  would be acceptable.  Additionally, the anticompetitive effects of a merger  may be remedied through contractual arrangements, such as the licensing  of intellectual property or a short-term supply agreement.  Alternatively,  FTC may decide to use some form of behavioral relief, such as establishing  firewalls in vertical mergers, to prevent the sharing of competitive  information.  Finally, the anticompetitive effects of some mergers may be  addressed with a combination of these remedies.  According to FTC staff,  the remedy is based on the particular facts of the case.
In response to FTC’s concerns, the merging parties might attempt to solve  the competitive problem(s), abandon the transaction, or pursue the case  through litigation.  If an effective consent order cannot be negotiated and  the merger has not yet been consummated, FTC staff are to recommend, in  appropriate cases, that FTC authorize the filing of an action in federal  district court for a preliminary injunction to stop the merger.  If authorized,  staff litigate preliminary injunction actions and appellate review  proceedings.
According to FTC staff, the team responsible for a merger investigation and  consent negotiations typically includes the Bureau of Competition staff  investigating the merger; staff from the Bureau of Competition’s  Compliance Division, who are experienced in order drafting and  enforcement; Bureau of Economics staff; and staff from FTC’s Office of the  General Counsel.  The team is to work together to develop and negotiate a  consent agreement containing a proposed order with the merging parties.   According to FTC staff, the parties may not agree with how the agency has  defined the competitive harm, but they are aware of FTC’s concerns. FTC  staff told us that generally the merging parties come forward with the first  set of proposed remedies.  FTC staff advised us that the merging parties  often have extensive information about their industry and the effect of the  proposed remedy.  They also told us that FTC staff’s job is to make clear  what their concerns are about the proposed transaction, to be available for  constructive dialogue on how the problem can be adequately addressed,  and to evaluate the adequacy of proposed remedies.
subsections: section_title: Factors FTC Considers in Evaluating a Remedy
paragraphs: According to a March 2000 speech by the then FTC General Counsel, FTC  generally considers several factors in evaluating a proposed restructuring  remedy.  Specifically, she said that FTC staff generally consider   whether the remedy is likely to protect, promote, or restore competition  in the affected market.  For example, in the case of a remedy involving  divestiture of assets, FTC determines whether the buyer is obtaining  sufficient assets, and the right kind of assets, to be able to create and  operate a successful, competitive business, and whether that buyer has  sufficient expertise, experience, incentives, and resources to  accomplish its goal of maintaining or restoring competition in the  relevant markets;  whether efficiencies justify restructuring, rather than condemning, a   the complexity of a proposed remedy; and  whether its acceptance of a restructuring remedy might have  implications for future matters.  For example, according to the March  2000 speech, when FTC accepts a restructuring remedy, parties to  subsequent proposed mergers tend to insist on a similar resolution to  the competitive problems raised by  their transactions, although FTC  may view the matters as distinguishable on factual or economic  grounds.
section_title: Approval Process for Proposed Consent Agreement
paragraphs: FTC staff negotiate a proposed consent agreement with the merging  parties. Once the merging parties sign the proposed consent agreement and  the Director of the Bureau of Competition approves the execution of the  draft consent agreement, it is reviewed by the full Commission, which  determines if the agency will accept the agreement for public comment.   For an agreement containing a proposed order to be approved subject to  public comment, a majority of the Commissioners must vote to accept the  agreement.  In general, if the Commission votes to accept the agreement  subject to public comment, the HSR Act waiting period is terminated, and  the parties can consummate the merger.  In consent agreements that  require up-front buyers, the divestitures also may be consummated, but the  divestiture must include a clause requiring its rescission if FTC does not  give final approval to the proposed consent order.  The merging parties  generally can consummate the transaction as soon as they are notified of  FTC action.  This notification occurs before the public announcement,  which generally occurs within a few days of the Commission’s vote to  accept the agreement.
Although not statutorily required, FTC places the consent agreement along  with an analysis to aid public comment on the public record, generally for a  30-day comment period, in which the public is invited to comment on the  merger and the proposed relief.  At end of the comment period, FTC staff  are to analyze the comments received and forward a second set of  recommendations to the Commission on whether the agency should issue  the final consent order.  According to FTC staff, typically the Commission  accepts the consent agreement and issues a complaint and decision and  order.  They told us that it is highly unusual for FTC to receive new  antitrust-related information during the public comment period that staff  had not already considered as part of their investigation.  In addition, they  said that after considering public comments, FTC has rarely modified a  consent order because in most instances, the complaint and order, as  proposed, provided the most appropriate relief.
section_title: Common Provisions Included in Orders
paragraphs: FTC staff have said that every order has the same goal: to preserve fully the  existing competition in the relevant market or markets.  According to FTC  staff, while developing appropriate merger remedies is a very fact-specific  process, many provisions have been developed over the years that appear  in almost every order.  These required provisions are readily apparent from  even a cursory review of merger consent orders posted on  FTC’s Web site.   In March 2002, FTC’s Bureau of Competition posted on its Web site a  document that provides responses to frequently asked questions about  merger consent order provisions.  This document as well as a review of  FTC orders, other public documents prepared by FTC staff, and our  discussions with FTC staff provide some insight into FTC’s consent order  provisions.
subsections: section_title: Divestitures
paragraphs: Most orders relating to a merger will require a divestiture—the selling of a  business or assets by one or both of the merging parties—in order to  maintain or restore the level of competition that existed before the merger.   During fiscal years 1990 through 2000, FTC announced 192 proposed  consent orders involving mergers for public comment, of which 153  required divestitures.  FTC has the authority to decide the extent of the  divestiture.  A divestiture can range from a partial divestiture to a  divestiture of an on-going business.  Table 10 shows that most (about 80  percent) of the consent orders involving mergers that FTC announced for  public comment during fiscal years 1990 through 2000 required divestiture  of assets.  (Appendix V provides information on the 153 consent orders  requiring divestitures that FTC announced for public comment during fiscal  years 1990 through 2000.)
According to FTC staff, FTC generally requires divestitures in the  geographic and product markets where the merging parties have  competitive overlaps and FTC has competitive concerns.  However, it is  within FTC’s power to require divestiture of a greater set of assets than  those which participate in the overlap markets in order to effectively  replace competition.  According to FTC staff, sometimes the buyers of the  divested assets will need other ancillary assets in order to effectively  restore competition.  Without these ancillary assets the buyer will not be  able to replicate the economies of scale of the firm that has been acquired.   In other cases, these additional assets will be necessary to give the buyer  both the incentive and ability to fully restore competition.  FTC staff told us  that the merging parties generally are the first to respond to staff’s  concerns by proposing appropriate assets to be divested.
According to FTC staff, an acceptable divestiture package is one that  maintains or restores competition in the relevant market.  FTC staff have  said that the divestiture of an entire business of either the acquired or  acquiring firm relating to the markets in which there is concern about  anticompetitive effects, is most likely to maintain or restore competition in  the relevant market, and thus will usually be an acceptable divestiture  package.  FTC has issued orders that require divestitures of less than the  entire business operating in, or producing for, the relevant market.  In those  cases, FTC concluded that the assets to be divested were sufficient to allow  the buyer of the assets to begin to compete in the market immediately and  to remedy the likely or actual anticompetitive effects of the challenged  acquisition.  According to FTC staff, the burden is on the merging parties to  provide concrete and convincing evidence that the asset package is  sufficient to allow the proposed buyer, whether large or small, to operate in  a manner that maintains or restores competition in the relevant market.
FTC also generally requires that a divestiture be absolute.  This means that  the merging parties are to have no continuing ties to the divested business  or assets, no continuing relationship with the buyer, and no financial stake  in the buyer’s success.  According to FTC staff, divestiture proposals in  which the buyer intends to rely on the merging parties to finance the  divestiture, or where the proposal includes performance payments by the  buyer generally have been rejected.
For consent orders in which FTC has required a divestiture(s), and the  buyer(s) of the divested asset(s) is not identified in the proposed order, the  merging parties must submit an application to FTC requesting approval to  divest the asset(s) to a proposed buyer(s) and await FTC approval before  consummating the divestiture.  According to FTC staff, the more  information the divestiture application contains about the transaction and  the proposed buyer, the more likely the approval can be obtained quickly.   The application must show how the proposed divestiture will remedy the  competitive problem identified in FTC’s complaint and restore competition.   Additionally, there must be a final signed contract for a divestiture  application to be sufficient.  The contract should conform to the  requirements of the consent order or, if it does not, explain how the  respondent will satisfy the order’s requirements.  The divestiture proposal  should demonstrate that the proposed buyer will be an effective competitor  after the divestiture.  The proposed buyers of the divested assets are to  provide directly to the FTC information on their (1) financial capability,  including the financing in place both to pay for the acquisition and to fund  working capital and other needs associated with an on-going business;  (2) technical and management skills; and (3) business plans and other  evidence of the proposed buyer’s intention and ability to compete.
In evaluating whether a proposed buyer has the financial resources to  remain a vigorous competitor in the market, FTC staff are to examine the  proposed buyer’s commitment to remain in the market by analyzing its past  operations and business plans as well as its future business plans for the  divested assets.  The staff also will likely talk with industry members  familiar with the proposed buyer, such as competitors, suppliers, and  customers.  The staff also are to evaluate the proposed buyer’s experience  and expertise to operate effectively in the market.  They also may examine  information on the proposed buyer’s debt structure to determine whether  the transaction is very risky for the company.  However, information on  debt structure is not collected for each buyer.  FTC staff told us that the  information provided by each buyer varies on a case-by-case basis.  FTC  does not use a standard form or checklist to collect information from  buyers because the facts of each case and, thus, the requirements for  information from the buyers differ.
FTC frequently requires that the merging parties find an acceptable  buyer(s) for the assets to be divested and that it execute an acceptable  purchase agreement and all the necessary ancillary agreements with the  buyer(s) before the FTC accepts the proposed consent order for public  comment.  FTC staff refers to such a buyer as an up-front buyer or buyer  up-front.  According to FTC staff, an up-front buyer may be the best way to  ensure a successful divestiture in the supermarket industry because the  approach enables staff to evaluate the marketability of the divestiture  assets with more concrete evidence and better determine whether, among  other things, there is a viable buyer(s) for the proposed divestiture assets.   Additionally, FTC staff told us that an up-front buyer  reduces the amount of time needed for the assets to be divested because  a buyer can be identified before the merger transaction occurs—a factor  in supermarket mergers and those of other retail operations, where  assets may quickly deteriorate during the search for a buyer; and  generally increases the likelihood that a buyer will restore the  competition that otherwise would be lost through the merger.
To preserve FTC’s ability to reject an up-front buyer following the public  comment period, consent orders accepted subject to public comment  require the merging parties to include a rescission provision in any  divestiture contracts in which closing on the divestiture will occur before  final FTC approval of the consent order.  According to FTC staff, as of June  30, 2002, FTC had not ordered rescission of an up-front divestiture.   FTC  staff told us that there have been instances in which the buyers will  purchase the assets only after the final order has been approved.   Additionally, they said that one FTC order, not in the retail industry,  specified that the assets could not be divested until the order was final.
Amount of Time to Divest Assets Divestiture orders specify the timeframe in which the assets must be  divested.  The merging parties must find a buyer(s), negotiate a contract(s),  submit the contract(s) to the FTC for its approval, and complete the  divestiture(s) within that time.  If there is an up-front buyer, the divestiture  is required almost immediately upon consummation of the subject merger  and FTC approves the up-front buyer when it issues the final consent order.   In other cases, however, the merging parties must submit their divestiture  application(s) to FTC early enough to allow for the 30-day public comment  period required by FTC rules. According to FTC staff, to satisfy its  obligation to divest by the date required in the order, the merging parties  have to actually consummate the sale by that date.  Executing an  agreement or filing an application for the FTC’s approval by that date does  not satisfy the obligation to divest by that date.
FTC may appoint trustees or independent auditors in three situations.   First, most orders authorize FTC to appoint a trustee to divest the assets if  the merging parties fail to divest them within the time frame required by the  consent order. In addition, where there is a hold separate order, FTC  appoints an independent auditor to ensure the independence of the assets  to be divested when they must be operated separately from the other assets  of the merging parties until they are sold.  Finally, where there is to be a  short-term continuing relationship after the divestiture, FTC may appoint a  trustee to ensure that the merging parties fully perform their  responsibilities by the order.
Some orders authorize a divestiture trustee to divest a different or larger  package of assets, referred to as a crown jewel, if the assets are not  divested on time.  According to FTC staff, a crown jewel is used where  there is risk that, if the respondent fails to divest the original divestiture  package on time or if the original divestiture does not take place for any  reason, a divestiture trustee may be needed to divest an expanded or  alternative package of assets to accomplish the divestiture remedy.  FTC  staff have said that a crown jewel provision may be particularly valuable  when there are some uncertainties about the marketability or viability of  the initial divestiture package.  FTC staff also have said that a crown jewel  provision increases the incentive for the merging parties to accomplish the  divestiture within the time required by FTC’s divestiture order, and it  provides a bigger, and presumably more attractive, package for the trustee  in the event the merging parties are unsuccessful in divesting the assets.
Asset Maintenance and Hold Separate Agreements A consent order may include an asset maintenance agreement that requires  the merging parties to maintain the viability, marketability, and  competitiveness of the assets.  FTC also has included hold-separate  agreements to protect all the assets to be divested to prevent interim  competitive harm and to preserve the viability and competitiveness of the  assets pending divestiture.  According to FTC staff, a hold separate  agreement is designed to keep the divestiture assets from being  intermingled with the divesting party’s other assets pending divestiture by  requiring the divestiture assets to be operated separately from and  independently of the remaining business.  Additionally, a “hold separate”  agreement prevents the transfer of competitively sensitive information and,  by taking the assets out of the hands of the divesting party, better protects  the assets from intentional or unintentional physical or intangible  deterioration that would affect their ability to be operated in a manner that  maintains or restores competition.  According to FTC staff, hold-separate  agreements are generally required if there is no up front-buyer.
A provision that required the merging parties to obtain FTC’s prior approval  for future transactions in the same product and geographic market(s),  usually for a period of 10 years was among the commonly included  provisions.  However, on June 21, 1995, FTC issued a new policy regarding  the use of prior approval requirements in FTC orders.   Previously,  whenever FTC found reason to believe that the respondent had attempted  (or completed) a merger transaction that was anticompetitive, a prior  approval provision was included in the order.  In some cases, according to  FTC staff, FTC also required prior notice of transactions that would not be  reportable under the HSR Act.  According to FTC staff, under the new  policy that is no longer the case.  The general rule now is that FTC will not  use prior approval or prior notice requirements except in special cases.
In cases in which the merging parties have a post-order divestiture  obligation, the merging parties generally are required to keep FTC informed  of their divestiture efforts every 30 or 60 days by submitting verified written  compliance reports.  To the extent there are obligations in the order  beyond the divestiture obligation, the merging parties are usually required  to submit verified written annual reports to FTC on their continued  compliance with those obligations.
section_title: Public Comments on Divestiture Orders
paragraphs: In the case of a post-order divestiture requirement, when the merging  parties file an application seeking approval of a particular divestiture, that  application is also placed on the public record for a 30-day comment  period.  Again, staff must analyze the comments received and make  recommendations to FTC.  In some cases, buyers are identified before FTC  accepts the consent agreement for public comment.  If the buyer is  identified early in the consent process and is identified in the proposed  consent order, there is no separate comment period because the public is  commenting on both the proposed order and divestiture at the same time.  Consequently, according to FTC staff, the public comment serves the twin  purposes of giving the public a chance to comment on the substance of  relief obtained as well as the opportunity to comment on the suitability of  the proposed buyers.  According to FTC staff, FTC has negotiated with  merging parties for divestitures of additional assets based on comments  received during the public comment period.  They also told us that after  considering public comments, FTC has rarely modified a consent order  accepted subject to public comment or disapproved an up-front divestiture.
section_title: Modification of Consent Orders
paragraphs: FTC can reopen and modify a final consent order when a request to reopen  identifies significant changes in circumstances and shows that the changes  eliminate the need for the order or make continued application of it  inequitable or harmful to competition.  FTC also may modify an order  when, although changed circumstances would not require reopening, it  determines that the public interest so requires.  According to standard  language in FTC orders reopening and modifying an order, FTC will balance  the reasons favoring the requested modification against any reasons not to  make the modification.  FTC also considers whether the particular  modification sought is appropriate to remedy the identified harm.
section_title: FTC Divestiture Orders Announced for Public Comment, Fiscal Years 1990 through 2000
paragraphs: Product market(s)
Retail sale of food and  grocery items in  supermarkets.
The Vons Companies, Inc. &  Williams Bros. Markets, Inc.
Retail sale and distribution of  food and grocery items in  supermarkets.
Red Apple Companies, Inc. +  John A. Catsimatidis +  Supermarket Acquisition Corp. +  Designcraft Industries, Inc. &  Sloan’s Supermarkets, Inc.
Retail sale of food and  grocery products in  supermarkets.
Retail sale of food and  grocery products in  supermarkets.
Schnuck Markets, Inc. & National  Holdings, Inc.
Retail sale of food and  grocery products in  supermarkets.
Schwegmann Giant Super  Markets, Inc. & National Holdings,  Inc.
Retail sale of food and  grocery products in  supermarkets.
The Stop and Shop Companies,  Inc. & Purity Supreme, Inc.
Retail sale of food and  grocery products in  supermarkets.
Koninklijke Ahold nv + Ahold USA,  Inc. & The Stop & Shop  Companies, Inc.
Retail sale of food and  grocery products in  supermarkets.
Jitney-Jungle Stores of America,  Inc. + Delta Acquisition  Corporation & Delchamps, Inc.
Retail sale of food and  grocery products in  supermarkets.
Albertson’s, Inc. + Locomotive  Acquisition Corporation & Buttrey  Food and Drug Store Company,  Inc.
Retail sale of food and  grocery products in  supermarkets.
Koninklijke Ahold nv & Giant  Food, Inc.
Retail sale of food and  grocery products in  supermarkets.
Product market(s)
The Kroger Co. & Fred Meyer, Inc. Retail sale of food and  grocery products in  supermarkets.
Retail sale of food and  grocery products in  supermarkets.
Shaw’s Supermarkets, Inc. + J  Sainsbury plc & Star Markets  Holdings, Inc.
Retail sale of food and  grocery products in  supermarkets.
The Kroger Co. & The John C.  Groub Company, Inc.
Retail sale of food and  grocery products in  supermarkets.
Delhaize America, Inc. (Food  Lion) + Etablissements Delhaize  Freres et Cie "Le Lion" S.A. &  Hannaford Bros. Co.
Retail sale of food and  grocery products in  supermarkets.
Manufacture and sale of  propylene oxide;  manufacture and sale of  urethane polyether polyol;  manufacture and sale of  propylene glycol .
Licensing of polypropylene  technology; polypropylene  technology; licensing,  production, and sales of  high-yield/high-specificity  polypropylene catalysts and  catalyst technology;  production and sales of  polypropylene resin;  production and sales of  polypropylene impact  copolymer resin.
NGC Corporation & Chevron  U.S.A., Inc.
Fractionation of natural gas  liquids.
Product market(s)
SoftSearch Holdings, Inc.+  Dwight’s Energydata, Inc.  &  Petroleum Information  Corporation + GeoQuest  International Holdings, Inc.
Sale or licensing of well data  and production data.
Natural gas gathering  services.
Shell Oil Co. & Texaco, Inc.
Refining, transportation,  terminaling, wholesale sales,  and retail sales of  conventional unleaded  gasoline, CARB-II gasoline  (specially formulated  gasoline required in  California), diesel fuel,  kerosene jet fuel, and  asphalt; and the  transportation of undiluted  heavy crude oil to the San  Francisco, Cal. area.
Mining, production, and sale  of coal; wholesale electricity  sales.
The Williams Companies, Inc. &  MAPCO, Inc.
Transportation by pipeline  and terminaling of propane;  transportation by pipeline of  raw mix.
Development, manufacture,  marketing, and sale of  viscosity index improver or  viscosity modifiers for motor  oil for automobiles and  trucks.
Natural gas gathering  services.
Product market(s)
Terminaling of gasoline and  other light petroleum  products; wholesale sale of  gasoline.
El Paso Energy Corporation &  Sonat, Inc.
Transportation of natural gas  out of producing fields;  transportation of natural gas  into gas consuming areas.
Generation of electric power  and the distribution of  natural gas.
Marketing of motor gasoline;  refining and marketing of  “CARB” gasoline (specially  formulated gasoline required  in California); bidding for and  refining of jet fuel for the U.S.  Navy; terminaling of gasoline  and other light petroleum  products; pipeline  transportation of light  petroleum products; pipeline  transportation of crude oil;  refining and marketing of  paraffinic base oil;  production and sale of jet  turbine oil.
Duke Energy Corporation &  Phillips Petroleum Company &  Duke Energy Field Services  L.L.C.
Natural gas gathering.
Product market(s)
Production, sale, and  delivery of Alaska North  Slope crude oil; production,  sale, and delivery of crude  oil used by targeted West  Coast refiners; production,  sale, and delivery of all  crude oil used by refiners on  the West Coast; purchase of  exploration rights; pipeline  transportation of Alaska  North Slope crude oil;  development for commercial  sale of natural gas; oil  pipeline and storage  services into and in Cushing.
Product market(s)
Amersham International plc &  Medi-Physics, Inc.
Formulating, manufacturing,  marketing, and selling  radiopharmaceutical brain  perfusion imaging agents for  use with Single Positron  Emission Tomography  equipment.
E-Z-EM, Inc. & Lafayette  Pharmacal, Inc.
Formulating, manufacturing,  marketing, and selling  barium diagnostic products  and related accessories.
Institut Merieux S.A. & Connaught  BioSciences, Inc.
Rabies-vaccines.
Roche Holdings, Inc. + Hoffman- La Roche Inc. + Roche Holdings  Ltd. & Genentech, Ltd.
Research and development  and production and  manufacture of: vitamin C;  therapeutics for treatment of  human growth hormone  deficiency or other short  stature deficiency; and CD4- based therapeutics for the  treatment of AIDS and HIV  infection.
Columbia Hospital Corporation &  Galen Health Care, Inc.
Production and sale of acute  care inpatient hospital  services.
Sale, rental, or lease of  oxygen systems.
Sale, rental, or lease of  oxygen systems.
Sale, rental or lease of  oxygen systems.
Production and sale of acute  care inpatient hospital  services.
Sale of prescription drugs in  retail stores.
Product market(s)
Production and sale of acute  care inpatient hospital  services.
Revco D.S., Inc. & Hook-SupeRx,  Inc.
Sale of prescription drugs in  retail stores.
Manufacture and sale of  drugs of abuse reagent  products.
Rite Aid Corporation &  LaVerdiere’s Enterprises, Inc.
Sale of prescription drugs in  retail stores.
Columbia/HCA Healthcare  Corporation & Medical Care  America, Inc.
Production and sale of  outpatient surgery services.
Manufacture and sale of  combined tetanus and  diphtheria vaccine (adult  Td); manufacture and sale of  combined diphtheria and  tetanus vaccine (pediatric  DT); manufacture and sale  of tetanus vaccine (tetanus  toxoid); research and  development of vaccine  against Rotavirus infection in  humans; research,  development, production,  and sale of cytokines for  white blood cell and platelet  restoration.
Wright Medical Technology, Inc. +  Kidd, Kamm Equity Partners, L.P.  + Kidd, Kamm Investments, L.P. +  Kidd, Kamm Investments, Inc. &  Orthomet, Inc.
Manufacture and sale of  orthopedic implants used or  intended for use in the  human hand approved by  the Federal Drug  Administration; research and  development of orthopedic  implants used or intended for  use in the human hand.
Product market(s)
Healthsouth Rehabilitation  Corporation & ReLife, Inc.
Production and sale by  rehabilitation hospital  facilities of comprehensive,  acute inpatient medical  rehabilitation services.
Boston Scientific Corporation &  Cardiovascular Imaging Systems,  Inc. & SCIMED Life Systems, Inc.
Research, development,  manufacture, and sale of  intravascular ultrasound  catheters.
Research and development  of noninjectable 5HT-ID  agonists.
Production and sale of acute  care in-patient hospital  services.
Production and sale of  psychiatric hospital services.
Hoechst AG & Marion Merrell  Dow, Inc.
Research, development,  manufacture, and sale of:  once a day diltiazem; oral  dosage forms of  mesalamine; rifampin; drugs  approved by FDA for  treatment of intermittent  claudication.
Research, development,  manufacture, and sale of  Topoisomerase I inhibitors  for the treatment of  colorectal cancer.
Manufacture and sale of  neurological shunts.
Fresenius AG + Fresenius USA,  Inc. & National Medical Care, Inc.
Hemodialysis concentrate.
Retail sale of pharmacy  services to third-party  payors.
Product market(s)
Gene therapy technology  and research and  development of gene  therapies; research,  development, manufacture,  and sale of flea control  products; research,  development, manufacture,  and sale of corn herbicide.
Research, development,  manufacture, and sale of  Factor VIII Inhibitor  Treatments; research and  development, manufacture,  and sale of Fibrin Sealant.
Production and sale of acute  care inpatient hospital  services.
American Home Products  Corporation & Solvay, S.A.
Research, development,  manufacture, and sale of  canine lyme, canine corona  virus, and feline leukemia  vaccines.
CVS Corporation & Revco D.S.,  Inc.
Retail sale of pharmacy  services to third-party  payors.
Research, development,  manufacture, and sale of  Cardiac Thrombolytic  agents; research,  development, manufacture,  and sale of drug abuse  testing reagents used in  workplace testing.
Medtronic, Inc. & Avecor  Cardiovascular, Inc.
Research, development,  manufacture, and sale of  non-occlusive arterial  pumps.
Manufacture and sale of  Long-Acting Local  Anesthetics.
Product market(s)
Research, development,  manufacture, and sale of  heart-lung machines.
Hoechst AG + RhÔne-Poulenc S.A. &  Aventis S.A.
Research, development,  manufacture, and sale of  direct thrombin inhibitors;  manufacture, marketing, and  sale of cellulose acetate.
Research, development,  manufacture, and sale of  over the counter  pediculicides; research,  development, manufacture,  and sale of selective  serotonin reuptake  inhibitor/selective  norepinephrinr reuptake  inhibitors drugs for treatment  of depression; research,  development, manufacture,  and sale of drugs for the  treatment of Alzheimer’s  disease; research,  development, manufacture,  and sale of  EGFr-tk  inhibitors for the treatment of  cancer.
Litton Industries, Inc. & PRC, Inc. Research, development,  manufacture, and sale of  Aegis destroyers; Systems  Engineering and Technical  Assistance Services.
Product market(s)
Research, development,  manufacture, and sale of air  traffic control systems;  provision of Systems  Engineering and Technical  Assistance services;  research, development,  manufacture, and sale of  commercial low earth orbit  satellites; research,  development, manufacture,  and sale of commercial  geosynchronous earth orbit  satellites; research,  development, manufacture,  and sale of military aircraft;  research, development,  manufacture, and sale of  NITE Hawk systems (same  as nonpublic military aircraft  information); research,  development, manufacture,  and sale of simulation and  training systems; research,  development, manufacture,  and sale of electronic  countermeasures; research,  development, manufacture,  and sale of mission  computers; research,  development, manufacture,  and sale of unmanned aerial  vehicles; research,  development, manufacture,  and sale of integrated  communications systems.
Product market(s)
Research, development,  manufacture, and sale of  high altitude endurance  unmanned air vehicles,  research, development,  manufacture, and sale of  space launch vehicles,  research, development,  manufacture, and sale of  space launch vehicle  propulsion systems.
TRW Inc. & BDM International,  Inc.
Research, development,  manufacture, and sale of a  ballistic missile defense  system; Systems  Engineering and Technical  Assistance Services.
Tele-communications, Inc., and  Liberty Media Corporation & QVC  Network, Inc.
Subscription television  program distribution to  consumers and/or in cable  premium movie channels.
Development and sale of  professional illustration  software for use on Apple  Macintosh and Power  Macintosh computers.
Multichannel video  programming.
Sale of cable television  program services to  Multichannel Video  Programming Distributors;  sale of cable television  programming services to  households.
Product market(s)
Automatic Data Processing, Inc.,  and AutoInfo, Inc.
Integrated group of  information products and  services that form the  complete salvage yard  information systems  network, consisting of an  interchange integrated with  yard management systems  and electronic  communications systems;  development and sale of  automotive parts and  assemblies interchanges;  development and sale of  yard management systems  integrated with interchange;  development and sale of  electronic communications  systems used by salvage  yards to locate parts through  searches of a central  database of parts; collection  and provision of salvage  yard inventory data to  customers who provide such  data as a part of estimating  products sold to insurance  companies.
Cablevision Systems Corporation  & Tele-Communications, Inc.
Distribution of multichannel  video programming by cable  television.
Manufacture and sale of  high-performance, general  purpose microprocessors  capable of running Windows  NT; manufacture and sale of  general-purpose  microprocessors; design and  development of high- performance, general- purpose microprocessors.
Product market(s)
Emerson Electric Company +  Emerson Power Transmission Co.  & McGill Manufacturing Company,  Inc.
Production and distribution  of mounted ball bearings.
Rug cleaning products  business.
T&N plc & J. P. Industries, Inc.
Manufacture and sale of  thinwall engine bearings;  design, manufacture, and  sale of tri-metal heavywall  engine bearings.
Manufacture and sale of  portland cement.
Mannesmann, AG +  Mannesmann Capital Corporation  & Rapistan Corp. + Lear Siegler  Holdings Corp.
Manufacture and sale of high  speed, light-to-medium duty  unit handling roller and belt  conveyor systems for  distribution end users.
Acrylic emulsion polymers  for exterior architectural  coatings.
Premium silver alloy  business.
Cooper Industries, Inc.+ Cooper  (U.K.) Limited & The Fusegear  Group of BTR p.l .c.
Low voltage industrial fuse  market.
Consol, Inc. + E.I. du Pont de  Nemours + RWE  Aktiengesellshaft & Island Creek  Coal, Inc.
Coal export terminal  services.
Manufacture and sale of  acrylic plastic.
Manufacture and sale of  coating resins and other  markets contained therein.
Product market(s)
Textron, Inc. & Avdel PLC and  Banner Industries, Inc.
Design, manufacture, and  sale of aerospace blind  rivets; design, manufacture,  and sale of nonaerospace  structural blind rivets.
Alvey Holdings, Inc. + Alvey, Inc.  & White Storage & Retrieval  Systems, Inc.
Manufacture and sale of  horizontal carousels.
The Dow Chemical Company +  Marion Merrell Dow Inc. & Rugby- Darby Group Companies, Inc.
Dicyclomine hydrochloride  capsules and tablets.
Manufacture and sale of  aluminum polyester powder.
Manufacture, distribution,  and sale of turbomolecular  pumps; manufacture,  distribution, and sale of  compact disc metallizers.
Reckitt & Colman plc & L&F  Products, Inc.
Development, manufacture,  marketing, and sale for  resale of carpet deodorizer  products.
Mustad Connecticut Inc. + Mustad  International Group NV & Cooper  Horseshoe Nail Co., Ltd.
Manufacture and sale of  rolled horseshoe nails.
Praxair, Inc. & CBI Industries, Inc. Manufacture and sale of  merchant argon, merchant  oxygen, merchant nitrogen.
Industrial power sources,  industrial engine drives,  battery chargers, and aircraft  ground power units.
Fused cast refractories; hot  surface igniters; silicon  carbide refractory bricks.
Product market(s)
Electronic automotive parts  catalogs; management  information systems  integrated with an electronic  catalog.
Mahle GmbH + Mahle, Inc. &  Metal Leve, S.A.
Research, development,  design, production, and sale  of articulate pistons;  research, development,  design, production, and sale  of large bore two-piece  pistons.
Large Welded Aluminum  Tubes; small Welded  Aluminum Tubes.
Research, development,  manufacture, and sale of  chelants.
S.C. Johnson & Son, Inc. & Dow  Brands Inc. + Dow Brands L.P. +  Dow Brands Canada Inc.
Research, development,  manufacture, and sale of soil  and stain removers;  research, development,  manufacture, and sale of  glass cleaner product.
Federal-Mogul Corporation & T&N  p.l.c.
Development, manufacture,  and sale of thinwall  bearings; development,  manufacture, and sale of  light duty engine bearings;  development, manufacture,  and sale of heavy duty  engine bearings; m- manufacture and sale of  aftermarket bearings.
Global Industrial Technologies,  Inc. & AP Green Industries, Inc.
Glass-furnace silica  refractories.
Nortek, Inc. + NTK Sub, Inc. &  NuTone, Inc.
Manufacture, production,  and sale of hard-wired  residential intercoms.
Product market(s)
Research, development,  manufacture, and sale of  water-based polymers.
Smelting and refining of  lead; recycling of junkers.
Development, manufacture,  and sale of Titanium  Aerospace Investment Cast  Components; development,  manufacture, and sale of  Large Stainless Steel  Aerospace Investment Cast  Components; development,  manufacture, and sale of  Large Nickel-based  Superalloy Aerospace  Investment Cast  Components.
Reckitt + Colman plc & Benckiser  N.V.
Research, development,  formulation, manufacture,  marketing, and sale of hard  surface bathroom cleaners;  research, development,  formulation, manufacture,  marketing, and sale of fine  fabric wash products.
MacDermid, Inc. & Polyfibron  Techonologies, Inc.
Research, development,  manufacture, and sale of  liquid photopolymers;  research, development, and  sale of solid sheet  photopolymers.
Product market(s)
RHI AG & Global Industrial  Technologies, Inc.
Research, development,  manufacture, and sale of  magnesia-carbon refractory  bricks for basic oxygen  furnaces; research,  development, manufacture,  and sale of magnesia- carbon bricks for electric arc  furnaces; research,  development, manufacture,  and sale of magnesia- carbon refractory bricks for  basic oxygen furnaces steel  ladles; research,  development, manufacture,  and sale of magnesia  chrome refractory bricks for  steel degassers; research,  development, manufacture,  and sale of high-alumina  refractory bricks for basic  oxygen furnaces steel  ladles; research,  development, manufacture,  and sale of high-alumina  refractory bricks for torpedo  cars.
Manufacture, marketing, and  sale of pure phosphoric acid.
Production, distribution, and  wholesale sale of nitrogen- based fertilizer urea;  production, distribution, and  wholesale sale of Urea  Ammonia Nitrogen 32  solution; production,  distribution, and wholesale  sale of ammonia.
Product market(s)
Branded carbonated soft  drinks.
Production and sale of bulk  bakery wheat flour.
Rhone-Poulenc & Marschall Dairy  Products + Miles Inc.
Manufacture and sale of  dairy cultures.
Branded carbonated soft  drinks; all carbonated soft  drinks.
American Stair-Glide Corporation  + Access Industries, Inc. & The  Cheney Company, Inc.
Manufacture and sale of  curved stairway lifts;  manufacture and sale of  straight stairway lifts;  manufacture and sale of  vertical wheelchair lifts.
Production and sale of title  plant information; production  and sale back plant  information.
High-purity alcohol process  alumina.
Sentinel Group, Inc.
Service Corporation International  & Sentinel Group, Inc.
Provision of funerals.
Continuous action air  freshener products business  and the instant air freshener  products business; furniture  care products business.
Product market(s)
Residential nonselective  herbicide market.
McCormick & Company, Inc. &  Haas Foods, Inc. + John I. Hass,  Inc.
Sara Lee Corporation + Kiwi  Brands Inc. & Knomark, Inc. +  Reckitt & Colman p.l.c.
Sale of chemical shoe care  products used in the  maintenance, cleaning, and  protection of shoes.
First Data Corporation and  Western Union Financial  Services, Inc.
Consumer money transfer  services.
B.A.T. Industries p.l.c. & Brown  and Williamson Tobacco  Corporation & American Tobacco  Company & American Brands,  Inc.
Manufacture and sale of  cigarettes for U.S.  consumption.
Provision of funerals and  provision of perpetual care  cemetery services.
Scotts Company & Stern's  Miracle-Gro Products, Inc.
Water soluble fertilizer for  consumer use.
Sale of consumer money  wire transfer services.
Provision of funerals, the  provision of perpetual care  cemetery services, and the  provision of crematory  services.
Manufacture and distribute  collagen sausage casings.
The Loewen Group Inc. + Loewen  Group International, Inc. &  Heritage Family Funeral Services,  Inc. (Virginia)
Provision of funerals.
Product market(s)
The Loewen Group Inc. + Loewen  Group International, Inc. & Garza  Memorial Funeral Home, Inc. +  Thomae-Garza Funeral Directors,  Inc. (Texas)
Provision of funerals.
Wesley-Jessen Corporation &  Pilkington Barnes Hind  International, Inc.
Manufacture and sale of  opaque contact lenses.
General Mills, Inc. & Ralcorp  Holdings, Inc.
Sale of branded and private  label ready-to-eat cereals.
Premium scotch; premium  gin.
Sale of timeshare exchange  services.
Production and sale of title  plant services.
ABB AB + ABB AG & Elsag Bailey  Process Automation N.V.
Manufacture and sale of  Process Gas  Chromatograph;  manufacture and sale of  Process Mass Spectrometer.
Funeral services; cemetery  services.
Provision of fleet card  services to over the road  trucking companies;  development, manufacture,  and sale of truck stop fuel  desk automation services.
VNU N.V. & Nielsen Media  Research, Inc.
Advertising expenditure  measurement service.
Provision of title information  services.
Product market(s)
FMC Corporation & Solutia, Inc. Manufacture, marketing, and  sale of pure phosphoric acid;  manufacture, marketing, and  sale of phosphorus  pentasulfide.
Funeral services.
section_title: Antitrust Practitioners’ Comments on FTC’s Divestiture Practices
paragraphs: In recent years, antitrust practitioners have raised concerns regarding  certain FTC’s divestiture practices, particularly its preference for up-front  buyers. Some practitioners we spoke with also raised concerns that the  basis for FTC’s merger remedy practices is not always clear and that the  extent of information provided to them on the rationale for FTC’s preferred  remedies varies by staff.  While interviewees had differing opinions on  whether merger remedy guidelines are needed, the commenting  practitioners generally agreed that there is a need for greater transparency  in the merger remedy process.
subsections: section_title: Questions Raised about FTC’s Up-Front Buyer Divestiture Practice
paragraphs: “First, it can delay consummation of the transaction while the parties find, and obtain  approval for, a buyer.  Assuming the transaction has procompetitive components, this delay  may have costs in the market.  Second, an upfront buyer requirement can lead to strategic  behavior by the potential purchasers who are given greater leverage in the negotiations.   This may skew the bidding process in a way that is inconsistent with the agencies’ [FTC and  DOJ] goal of preserving competition in the marketplace.”
The American Bar Association (ABA) also has questioned FTC’s up-front  buyer approach.  In 2001, ABA’s Task Force on Federal Antitrust Agencies  of the Section of Antitrust Law issued a report on the state of federal  enforcement of the antitrust laws.  According to the report, there is some  uncertainty in the legal and business communities concerning the  circumstances under which FTC policy requires an up-front buyer.  The  report also stated that  “The policy needs to be clarified.  In addition, the circumstances when up- front buyers should be required should be carefully examined to balance  the need to preserve effective competition with the imposition of  unnecessary costs on the merging parties.”
section_title: Concerns Raised about Lack of Transparency in FTC’s Merger Remedy Process
paragraphs: The lack of transparency in FTC’s merger remedy process was another area  of concern. Antitrust practitioners we spoke with told us that while FTC  speeches, public workshops, and the 1999 divestiture study provide some  information on FTC’s divestiture practices, the basis for the practices is not  always clear, and the extent of information provided to the merging parties  on the rationale for FTC’s preferred remedy varies by staff.  In the 2001  ABA Task Force report, ABA stated that “…press releases issued by FTC  explaining its enforcement actions merely highlight the remedies achieved  and provide conclusionary reviews of the competitive concerns, but  generally do not meaningfully explain the market context, specific  competitive concerns, and the mode of analyzing competitive effects.”  Similarly, in a recent article entitled Toward Guidelines for Merger  Remedies, the President of American Antitrust Institute (AAI) said that  FTC's analysis to aid public comment documents do not offer insight into  trade-offs accepted during negotiations or reasons for accepting  settlements that may differ in important respects from settlements in other  apparently similar cases.
FTC staff acknowledged that FTC does not always provide a detailed  rationale for its divestiture approaches.  They told us that because FTC’s  decisions are largely tied to companies’ trade secret information, which  FTC is statutorily prevented from disclosing to the public, FTC can provide  to the public only limited information on the basis for its decisions.  ABA  and AAI have concurred that FTC’s lack of explanation of the basis for the  remedies included in a divestiture order is due in part to the proprietary  nature of the information.  Nonetheless, in the AAI article on merger  remedies, the President of AAI said that FTC has overused confidentiality  as an excuse for not providing more transparency in the merger remedy  process.
In fact, both ABA and AAI have said that there needs to be a more  transparent approach to the remedy phase of the merger review process.   Specifically, ABA has urged FTC to make greater efforts to more  meaningfully explain the factors that give rise to competitive concerns, the  type of evidence viewed as relevant, the econometric analysis used (if any),  and other key considerations that led to the decision to bring a complaint  or enter into a consent order.  AAI also has recommended that FTC  (1) study its enforcement patterns, (2) derive best practices, (3) formalize  rules, (4) provide transparency so that the public can understand and  evaluate decisions being made, and (5) conduct regular post hoc  evaluations to determine how well a program is working.
FTC staff told us that FTC does in fact value transparency and has taken  steps to provide the business community with information on FTC’s merger  review and merger remedy processes.  In a June 10, 2002, speech  commemorating the twentieth anniversary of the merger guidelines,  which apply to the merger investigation phase of the merger review  process, FTC’s Chairman said that “… the Guidelines demonstrated the value of transparency—having public  antitrust authorities clearly state their enforcement attentions , even at  the risk of relinquishing the capacity to employ enforcement approaches  that well-specified guidelines might disavow or disfavor.  Experience with  the 1982 Merger Guidelines has shown how the quality of policy improve  when public officials specify clearly the bases on which they exercise their  authority.”
section_title: Questions Raised Regarding Whether Merger-Remedy Guidelines Are Needed
paragraphs: There has been some discussion among antitrust practitioners about  whether merger-remedy guidelines are needed.  Some practitioners have  said that merger-remedy guidelines would provide a more structured,  coherent, and transparent approach to the remedy phase of the merger  review process.  In fact, AAI prepared a proposal for merger-remedy  guidelines and presented it to FTC in March 2002 for review and discussion  at FTC’s merger-remedies workshops.  Other practitioners have called for  “practice guides” that could be used to educate antitrust practitioners and  FTC staff about when and why to use certain divestiture practices, but  would allow for greater flexibility in structuring a remedy.  Regardless of  whether they believed that guidelines are needed, they all agreed that there  is a need for greater transparency in the merger-remedy process.
Conversely, FTC staff told us that merger-remedy guidelines are not needed  for the following reasons:   Because each case is unique and fact-based they draw on their past  experiences and advice from experienced senior staff, rather than  developing written policies and procedures to guide staff in fashioning  merger remedies.
The merging parties have very sophisticated antitrust counsel who are  aware of how to structure remedies in order to obtain FTC approval.
FTC speeches, workshops, consent orders, and public documents  provide antitrust practitioners and the business community with  information on FTC’s merger remedy preferences.
According to FTC staff, in an effort to continue to build on its relationship  with antitrust practitioners and other interest groups (such as consumer  groups and corporate personnel) and to increase the transparency of its  merger review and remedy processes, FTC planned two sets of public  workshops, one focusing on merger investigations and the other focusing  on remedies. A March 15, 2002, FTC press release announcing the  workshops states that the remedies workshops will consider whether the  agency’s remedy provisions are necessary or sufficient and if the process  through which they are negotiated can be improved.  The first remedy  workshop was held in Washington, D.C., in June 2002.
section_title: Comments on FTC’s Divestiture Practices
paragraphs: Associations that represent grocery store businesses have complained to  FTC that its clean sweep, single buyer, and up-front buyer divestiture  practices have impaired the ability of small and independent businesses to  purchase divested assets. Additionally, several smaller buyers of divested  grocery store assets told us that other factors, such as the merging parties’  bidding process, create additional challenges for smaller businesses in  purchasing and maintaining the viability of divested assets.  However, our  review of public comments and discussions with associations that  represent small and independent drug stores, funeral services, or gas  station businesses (all the businesses we studied except groceries),  revealed that few concerns have been raised concerning the impact of  FTC’s clean sweep, single buyer, and up-front buyer divestiture practices on  the ability of small buyers in these industries to purchase divested assets.
subsections: section_title: Associations Representing Small Grocery Store Businesses Raised Concerns about FTC’s Clean Sweep, Single Buyer, and Up-Front Buyer Divestiture Practices
paragraphs: The National Grocers Association (NGA) and the Food Marketing Institute  (FMI) submitted comments to FTC saying that FTC’s clean sweep, single  buyer, and up-front buyer divestiture practices have hindered the ability of  small and independent grocery store businesses to purchase divested  assets.  Both associations told FTC that these practices, described by  FTC as preferences, have been interpreted in the business community as  inflexible rules or policies. “These policies ignore the dynamics of the industry and the ever changing affects  that  these policies can have on the competitive environment.  The FTC’s criteria of having a  single buyer replace things as they are is inherently flawed and plays directly into the hands  of power buyers.  The FTC criteria do not recognize the inherent difference between the top  five multi-billion dollar chains and privately owned regional and community retailers.”
FMI submitted a paper to FTC on June 18, 2002, as part of FTC’s workshops  on merger investigations and remedies.  According to FMI, since  approximately 1996, FTC has applied increasingly rigorous policies to  supermarket divestitures.  FMI noted that while FTC staff describe these  policies as preferences, they often have been interpreted as inflexible rules.   Similar to NGA’s comments, FMI said that the most significant policies that  make it difficult for small and independent businesses to purchase divested  assets are clean sweeps, single buyers, up-front buyers, and no change in  market concentration policies.  Specifically, FMI said that:  FTC’s preference for clean sweep divestitures may prevent small  retailers from assembling divestiture packages that best suit their needs.   According to FMI, to the extent that FTC’s clean sweep policy is based  on concerns about upsetting existing store networks or customer  relationships, the concerns are overstated because (1) supermarket  chains with a number of stores in a geographic market will inevitably  contain some strong stores and some weaker stores and (2) there is no  basis for assuming that a package of assets comprised of assets from  both merging parties will contain a greater proportion of weaker stores.   Additionally, FMI said that FTC’s claim that the risk that divestiture of a  mixed package of assets will cause a loss of distribution efficiencies  also is exaggerated because there is no basis for FTC’s assumption that  an unmixed group of stores can always be supplied more efficiently than  a mixed group of stores.  FMI noted that “whatever logistical advantage  lies in having all of the stores come from one prior owner rather than  two generally is modest.”  Like NGA, FMI indicated that FTC’s use of  clean sweeps reflects the staffs’ desire to avoid the burden of having to  evaluate individual stores to examine the viability of each store and  determine whether the merging parties may be attempting to divest their  least profitable assets.
FTC’s preference for a single buyer limits opportunities for  independents and small chains to purchase divested assets.  FMI said  that FTC staff rarely, if ever, allow stores to be sold to more than one  buyer per market.  Independents and small chains often are interested in  buying, or may only have the ability to buy, a portion of the stores that  are being divested in a market, but a single-buyer policy prevents this.   According to FMI, a firm does not need to have complete market  coverage or engage in marketwide advertising in order to be an effective  competitor because no particular scale or degree of market coverage is  necessary to compete effectively in grocery retailing.  Additionally, FMI  said that if more than one buyer is allowed to purchase the divested  assets, the buyers of divested assets could seed a market with several  growing chains.
section_title: Other Concerns Raised by Grocery Associations
paragraphs: NGA and FMI also raised several other concerns about the impact of FTC’s  divestiture practices on the ability of small businesses to purchase divested  assets.
Both NGA and FMI said that FTC’s strong preference for out-of-market  buyers (buyers that at the time of the proposed divestiture, are not  already operating within the same product and geographic markets as  the assets to be divested) has disadvantaged small businesses by  preventing them from expanding to provide increased competition for  the merged firm.  According to FMI, as long as there is any possibility of  a buyer that does not currently operate in the geographic market, FTC  staffs’ typical approach has been to warn counsel that securing approval  for a buyer within the geographic market would be difficult and time- consuming.  FMI said that in response to FTC’s warnings, most counsel  have found out-of-market buyers.
NGA indicated that FTC’s definition of the relevant geographic market  also impacts the ability of small businesses to purchase divested assets  because FTC does not allow buyers already operating in the relevant  geographic market to purchase the assets to be divested if their market  share would increase above that permitted by the Hortizontal Merger  Guidelines.  According to NGA’s public comment on the Food Lion and  Hannaford merger, FTC should have defined one of the relevant  geographic markets—Richmond, Virginia—in which to analyze the  competitive concerns differently because there was strong evidence  that inner city Richmond was a separate geographic market.  NGA  claimed that if FTC had defined inner city Richmond as a separate  market, the market share of an independent Richmond grocer interested  in purchasing the divested assets would have increased only to a level  acceptable under the Horizontal Merger Guidelines.
NGA noted that the merging parties’ bidding process for the assets to be  divested may disadvantage small businesses.  NGA suggested that FTC  ensure a fair and open divestiture process by requiring the merging  parties to provide FTC with information on the bidding process, such as  copies of all expressions of interest in purchasing the assets to be  divested and the merging parties’ evaluations of each bid.  According to  NGA, in numerous meetings with FTC staff and Commissioners, NGA  has consistently been told that FTC leaves the divestiture process in the  hands of the merging parties, and its role is merely to approve or  disapprove the proposed buyer(s).  NGA said that FTC should play a  greater role in the bidding process for the assets to be divested.
According to FMI, independents and small firms believe they face closer  scrutiny of their financial viability, experience, supply arrangements,  and business plans than large chains.  FMI reported that the additional  scrutiny of independents and small firms takes time and brings added  uncertainty to the process, usually at a late stage in the investigation,  when the parties are becoming increasingly worried that the merger  may fall apart.  Additionally, FMI noted that given the perception that  independents and small chains are subjected to more scrutiny than large  chains to be approved as buyers of divested assets, merging parties are  likely to seek a buyer that is a “sure thing”—a well-established, out-of- market chain, rather than proposing divestiture to one or more  independents.
FMI concluded that in supermarket mergers, as perhaps no other industry,  FTC in recent years has imposed a series of increasingly inflexible  divestiture policies that place small chains and independent businesses at a  disadvantage in the divestiture process, to their detriment and the  detriment of consumers.  Additionally, FMI said that FTC could go a long  way toward dispelling the perception of bias against small chains and  independent businesses in part by not insisting on clean sweeps and single  buyers and by being open to in-market buyers.  These changes, according  to FMI, would give small chains and independent businesses realistic  opportunities to become stronger and larger competitors.
section_title: Smaller Buyers of Divested Grocery Store Assets Raised Concerns about the Challenges They Face in Purchasing Divested Assets and Maintaining Their Viability
paragraphs: While obtaining revenue data from buyers of divested assets,  representatives of 11 grocery store businesses with average annual  revenues of $200 million or less provided anecdotal comments about the  challenges that smaller businesses face in purchasing divested assets and  maintaining their viability. Regarding their ability to purchase divested  grocery store assets, the buyers provided the following comments.
One representative noted that currently there is limited opportunity for  smaller grocery store businesses to purchase divested assets because  the merging parties sell the assets as a package to a single buyer.   Smaller businesses may have the necessary financing to purchase one or  two of the assets, but usually do not have the financial strength to  purchase all of the assets.
Four representatives told us that the merging parties usually offer  smaller businesses the stores that the larger chains have declined to  purchase.  They said that they generally have access to some of the least  desirable grocery stores being divested in terms of the condition of the  stores, and have had to spend a considerable amount of money to  refurbish them.
Two representatives indicated that smaller businesses usually do not  have an opportunity to express an interest in purchasing divested assets  because, in practice, the bidding process is often closed to small  businesses.  They indicated that typically the merging parties have  already identified buyers for the divested assets by the time that small  businesses become aware that the merging parties must divest assets.   One of the representatives said that FTC may need to play a greater role  in the bidding process.
The anecdotal accounts suggested that the current environment,  particularly the practices of merger parties, makes it difficult to maintain  the viability of divested grocery store assets:  Two representatives told us that they received inaccurate or incomplete  information from the merging parties or wholesaler.  They said that after  purchasing the stores, they discovered that the stores generated  considerably less sales than reported to them by the merging parties.   For example, a buyer of one divested grocery store said that he had to  close the store 5 months after purchasing the store because it generated  only a fraction of the sales quoted by the merging parties.
Two representatives said that buyers of divested assets, particularly  smaller buyers, have faced challenges remaining in business when the  merging parties build state of the art supermarkets in the same  geographic markets in which they were required to divest assets.  They  said their sales declined and several supermarkets went out of business  because they were unable to compete with the larger, state of the art  supermarket.
Two representatives told us that the biggest problem smaller grocers  face in maintaining the viability of the divested stores they purchase is  competing with grocery chains that have supercenters.  They told us  that it is becoming extremely difficult for small businesses to compete  with supercenters because the supercenters offer one-stop shopping— the convenience of being able to purchase groceries at the same time as  other household items, such as clothes, appliances, and other household  products.  They also noted that while supercenters and large grocery  chains are able to purchase and/or sell some products below costs,  small businesses cannot afford to sell products below cost and remain  profitable.
section_title: Public Comments Raised Few Concerns Regarding the Impact of FTC’s Divestiture Practices on Small Businesses in the Drug Store, Funeral Services, and Gas Station Industries
paragraphs: Only one of the 1,902 public comments contained in FTC’s public files for  the 31 divestiture orders included in our review raised a specific concern  about how FTC’s clean sweep, single buyer, and/or up-front buyer  divestiture practices have impacted the ability of small businesses to  purchase divested assets.  However, we were unable to fully examine the  public comments for the 31 divestiture orders included in our review  because some of them were confidential and others appeared to be missing  from the files.  Of the 1,902 public comments, 1,441 related to grocery  store divestiture orders, 455 related to gas stations, four to drug stores, and  two to funeral services. Our review of the public comments for each of the  industries showed that:  About 80 percent (1,146 of 1,441) of the comments relating to the  grocery store industry were petitions or form letters from individuals  expressing objections to the divestiture of a supermarket to a proposed  buyer for the Ahold and Stop and Shop divestiture order announced for  public comment in fiscal year 1996.  Specifically, the customers of an  existing local grocery store were concerned that the proposed buyer of  the divested supermarket would harm the market share of the existing  local grocery store business.  Most of the remaining comments  concerning grocery store divestitures were from customers who did not  want the store where they shopped to close or change ownership.  Other  comments were from employees of stores being divested that did not  want to work for a proposed buyer(s) when the buyer(s) did not have a  good history of managing its employees or they feared they would lose  their jobs if the stores were divested.
Two of the four drug store industry comments opposed the merger, one  requested that a particular drug store be included in the divestiture  order and one requested that a specific drug store be sold to an  independent drug buyer rather than another drug store chain.
One of the two comments concerning the mergers in the funeral  services industry expressed objection to the merging parties’ selection  of the funeral homes to be divested.  The other comment questioned  whether an investigation was made to determine if the required  divestiture would restore competition.
About 60 percent (275 of 455) of the comments relating to the gas  station industry were petitions from retirees of one of the merging  parties who were concerned about their medical coverage after the  merger or citizens who wanted to continue the gasoline brands of the 2  merging parties. Most of the remaining comments were from  independent gas station dealers or their representatives expressing  concerns that the divestiture orders would remove dealers from their  business place with no right of first refusal on the purchase of their gas  stations.
FTC received only one public comment relating to small businesses that  concerned the impact of FTC’s clean sweep divestiture, single buyer, and  up-front buyer practices on the ability of small businesses to purchase  divested assets.  Specifically, in response to the Food Lion and Hannaford  divestiture order announced for public comment in fiscal year 2000, NGA,  as discussed previously, commented that FTC’s preference for clean  sweeps, single buyers, and buyers that do not currently have a presence in  the geographic market in which the assets are being divested have  tremendously disadvantaged small businesses.  Other public comments  that related to small business ranged from whether a smaller business  could effectively compete in a market dominated by larger companies to  how a divestiture will impact supply contacts that small businesses had in  place with one of the merging parties prior to the merger.
FTC staff told us that the formal public comment period is not the only  opportunity for concerned parties to express their views on an FTC matter.   According to FTC staff, it is customary for affected third parties, including  smaller businesses, to communicate with Commissioners and staff  throughout the merger investigation.  As a result, they said that the formal  public record of comments on a proposed divestiture order and FTC’s  responses do not represent the totality of FTC’s responsiveness to small  businesses who have concerns about a pending merger.  They cited two  instances in which FTC has received comments outside of the public  comment process regarding small and independent businesses being  unable to purchase divested assets.  First, they told us that some time ago,  an attorney representing a grocery wholesaler presented arguments for  why FTC should accept wholesaler-suppliers as acquirers of supermarkets.   They said that FTC has considered those arguments in all matters, as  appropriate.  Additionally, in regard to the divestitures of gasoline retailing  assets in the Exxon and Mobil matter, FTC received communications from  a small regional “jobber” who complained that the requirement that all  assets be divested to a single acquirer foreclosed the jobber from bidding  on the divested assets.  In that matter, FTC determined that an effective  remedy precluded dividing the assets into smaller packages.
We also talked with associations that represent small and independent  businesses as well as SBA officials who generally told us that they were  unaware of concerns directly related to the impact of FTC’s clean sweep,  single buyer, and up-front buyer divestiture practices on the ability of small  businesses to purchase divested assets.  Specifically,  The Petroleum Marketers Association of America expressed some  concern about FTC’s divestiture practices in general.  The official we  spoke with noted that FTC has the ability to influence the merging  parties’ choice of a buyer of divested assets even though FTC does not  ultimately choose the buyer.
A National Community Pharmacists Association (NCPA) official told us  that NCPA did not have any concerns directly related to FTC’s  divestiture practices.  However, the official said that he was not aware  that in certain situations FTC explicitly required merging parties to  divest drug store assets to a single buyer.  The official also said that it  was his view that this requirement would definitely make it difficult for  small businesses to purchase divested drug store assets.
Officials of 4 of the 10 associations we contacted—the National Funeral  Directors Association, the National Business Association, the National  Small Business United, and the U.S. Chamber of Commerce—said that  to their knowledge their members did not have any concerns directly  related to the impact of FTC’s divestiture practices on the ability of  small businesses to purchase divested assets.
Officials of the National Federation of Independent Business and the  SCORE Association told us that their associations do not have an  official position on the issue.
We also contacted staff in the Small Business Administration’s (SBA) Office  of Advocacy to determine whether any small businesses or associations  representing small businesses had raised this issue with SBA.  According to  SBA staff, SBA had not been made aware of concerns about the impact of  FTC’s divestiture practices on the ability of small businesses to purchase  divested assets.  They noted that the issue that has been raised concerning  mergers in the retail sector is whether small businesses will have access to  products or services after the merger takes place.  For example, they told  us that in response to the Exxon and Mobil as well as the British Petroleum  and Amoco Atlantic Richfield Company mergers, small businesses raised  concerns regarding whether the merged companies would continue to  provide them with access to crude oil.
section_title: Comments from the Federal Trade Commission
section_title: GAO Contacts and Staff Acknowledgments
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section_title: Staff Acknowledgments
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