Revco D.S. Inc

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF REVCO D. , INC.

CONSENT ORDER, ETC , IN REGARD TO ALLEGED VIOLATION OF SEe. 7 OF THE CLA YTON ACT AND SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket C-3540. Complaint, Oct. 1994--Decision, Oct. 31, 1994 This consent order requires, among other things, an Ohio-based drugstore chain to divest, within twelve months, to a Commission approved acquirer, either the phannacy business that it owns or the phanacy business acquired from Hook- SupeRx, Inc. (HSI) in each of three geographic areas in Virginia. If the divestitures are not completed within twelve months, the order requires the respondent to consent to the appointment of a trustee to divest the assets. In addition, the consent order requires the respondent to obtain prior Commission approval, for ten years, before acquiring any similar business interest in any of the three specified gcographk areas.

Appearances For the Commission: Laura Wilkinson, Ann Malester. Jacqueline Mendel and Mary Lou Steptoe.

For the respondent: Louis Sernoff and Alan Ward, Baker & Hostetler, Washington, D.

COMPLAINT The Federal Trade Commission ("Commission ), having reason to believe that respondent, Revco D.S. Inc., a corporation subject to the jurisdiction of the Federal Trade Commission, has agreed to acquire Hook-SupeRx, Inc. , a corporation subject to the jurisdiction of the Federal Trade Commission, in violation of Section 7 of the Clayton Act, as amended, 15 U. c. 18, and Section 5 of the Federal Trade Commission Act ("FTC Act ), 15 U. c. 45; and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows:

REVCO D. , INe. 1019 IOJ8 Complaint I. DEFINITIONS For the purposes of this complaint the following definitions apply:

I. "Revco means Revco D.S. Inc., a corporation organized existing, and doing business under and by virtue of the laws of Delaware, its directors, officers, employees, agents and representatives, its domestic and foreign parents, predecessors, successors assigns, divisions, subsidiaries, affiiates, partnerships and joint ventures, and the directors, officers, employees, agents and representatives of its domestic and foreign predecessors, successors, assigns, divisions, subsidiaries, affiliates, partnerships and joint ventures. The words "subsidiary, affiliate" and ' joint venture refer to any firm in which there is partial (10 percent or more) or total ownership or control between corporations or partnerships- 2. "HSr means Hook-SupeRx, Inc., a corporation organized existing, and doing business under and by virtue of the laws of Delaware, its directors, officers, employees, agents and representatives, its domestic and foreign parents, predecessors, successors assigns, divisions, subsidiaries, affiliates, partnerships and joint ventures, and the directors, officers, employees, agcnts and representatives of its domestic and foreign predecessors, successors assigns, divisions, subsidiaries, affiliates, partnerships and joint ventures- The words "subsidiary, affiliate" and "joint venture refer to any firm in which there is partial (10 percent or more) or total ownership or control between corporations or partnerships. II. THE RESPONDENT 3. Respondent Revco is a corporation organized and existing under the laws of Delaware, with its principal place of business at 1925 Enterprise Parkway, Twinsburg, Ohio.

4. For purposes of this proceeding, respondent is, and at al1 times relevant herein has been. engaged in commerce as "commerce is defined in Section I of the Clayton Act, as amended IS U.sc. 12 and is a corporation whose business is in or affecting commerce as commerce" is defined in Section 4 of the FTC Act, as amended, 15 U.sc. 44.

Complaint 118 FTC. !I THE ACQUIRED COMPANY 5. HSI is a corporation organized and existing under the laws of the State of Delaware, with its headquarters at 175 Tri County Parkway, Cincinnati, Ohio.

6. HSI is, and at al1 times relevant herein has been, engaged in commerce as "commerce" is defined in Section I of the Clayton Act as amended, 15 U. c. 12, and is a corporation whose business is in or affecting commerce as "commerce" is defined in Section 4 of the FTC Act, as amended, 15 U. C. 44.

IV. THE ACQUISITON 7. On or about March 31 , 1994, Revco and HSI entered an agreement providing for the sale of HSI to Revco, for consideration totaling approximately $600 million ("acquisition V. THE RELEV ANT MARKETS 8. For purposes of this complaint, the relevant line of commerce in which to analyze the effects of the acquisition is the saJe of prescription drugs in retail stores.

9. For purposes of this complaint, the relevant sections of the country in which to analyze the effects of the acquisition are: Covington, Virginia; Marion, Virginia; and Radford, Virginia. 10. The relevant markets set forth in paragraphs eight and nine are highly concentrated, whether measured by Herfindahl- Hirschmann Indices ("HHI") or two-firm and four-firm concentration ratios- II. Entry into the relevant markets is difficult or unlikely. 12. Revco and HSI are actual competitors in the relevant markets. VI. EFFECTS OF THE ACQUISITION 13. The effect of the acquisition may be substantially to lessen competition and to tend to create a monopoly in the relevant markets in violation of Section 7 of the Clayton Act, 15 U. c. 18, and Section 5 of the Federal Trade Commission Act, 15 U. c. 45, in the following ways, among others:

REVCO D. , INe. 1021 1018 Decision and Order a. By eliminating direct actual competition between Revco and HSI;

b. By increasing the likelihood that Revco wil unilaterally exercise market power; or c. By increasing the likelihood of collusion in the relevant markets- 14. All of the above increase the likelihood that firms in the relevant markets will increase prices and restrict output both in the near future and in the long term.

VII. VIOLATIONS CHARGED 15. The acquisition agreement described in paragraph seven , 15constitutes a violation of Section 5 of the FTC Act, as amended c. 45.

16. The acquisition described in paragraph seven, if consummated, would constitute a violation of Section 7 of the Clayton Act asas amended, 15 U. c. 18, and Section 5 of the FTC Act, amended, 15 U. c. 45.

DECISION AND ORDER The Federal Trade Commission having initiated an investigation ofrespondent s proposed acquisition of certain voting securities and assets of Hook-SupeRx, Inc. , and respondent having been furnished thereafter with a copy of a draft of complaint that the Bureau of Competition presented to the Commission for its consideration and which, if issued by the Commission, would charge respondent with violations of Section 7 of the Clayton Act, as amended, 15 U. c. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 c. 45; and The respondent, its attorneys, and counsel for the Commission having thereafter executed an agreement containing a consent order an admission by respondent of all the jurisdictional facts set forth in the aforesaid draft of the complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondent that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission s Rules; and Decision and Order 118 F. The Commission having thereafter considered the matter and having determined that it had reason to believe that respondent has violated the said Acts, and that a complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, now in further conformity with the procedure prescribed in Section 2.34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and enters the following order:

I. Respondent Revco D. , Inc. ("Revco ) is a corporation organized and existing under the laws of Delaware with its offce and principal place of business at 1925 Enterprise Parkway, Twinsburg, Ohio.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondent, and the proceeding is in the public interest.

ORDER It is ordered That, as used in this order, the following definitions shall apply:

A. Rever;" means Revco D. , Inc. , its predecessors, subsidiaries, divisions, groups and affiiates controlled by Revco, and their respective directors, officers, employees, agents, representatives, and their respective successors and assigns.

B. Commission means the Federal Trade Commission. C. Acquisition means the acquisition of all the voting stock of Hook-SupeRx, Inc. ("HSI") by respondent Revco. D. Acquirer means the party or parties to whom respondent Revco divests the assets herein ordered to be divested. E. Prescription drugs means ethical drugs available at retail only by prescription.

F. HSI Pharmacy Business means HSI's business of selling prescription drugs at any of the retail stores listed in paragraph I.(J). of this order, but does not include HSI's business of selling other products in those retail stores.

), REVCO D. , INe. 1023 1018 Of:cision and Order G- HSI Pharmacy Assets means all assets constituting the HSI Pharmacy Business, excluding those assets pertaining to the Hook SupeRx, and Brooks trade names, trade dress, trade marks and service marks, and to Revco s proprietary point of sale equipment or its PAL'" system, and including but not limited to: I. Leases, at the Acquirer s option;

2. Zoning approvals and registrations, at the Acquirer s option; 3. Books, records, manuals, and operations reports relating to the HSI Pharmacy Business, but only if the divestiture is to an Acquirer that does not already operate a pharmacy in any location; 4. Inventory instruction, or, at the Acquirer s option, lists of stock keeping units ("SKUs Le. all forms, package sizes and other units in which prescription drugs are sold and which are used in records of sales and inventories;

5. Lists of all prescription drug customers, including but not limited to third party insurers, including all files of names. addresses and telephone numbers of the individual customer contacts, the unit and dollar amounts of sales, by product, to each customer, and store profit and loss statement(s);

6. All names and addresses of prescription drug manufacturers and distributors that supply or have supplied HSI within the six months preceding the date this order becomes final; and 7. Goodwill, tangible and intangible, utilized in the sale of prescription drugs.

H. Revco Pharmacy Business means Revco s business of selling prescription drugs at any of the retail stores listed in paragraph 1.(1). of this order, but does not include Revco s business of selling other products in those retail stores.

I. Revco Pharmacy Assets means all assets constituting the Revco Pharmacy Business, excluding those assets pertaining to the Revco trade names, trade dress, trade marks and service marks, and to Revco s proprietary point of sale equipment or its PAL'" system and including but not limited to:

I. Leases, at the Acquirer s option;

2. Zoning approvals and registrations, at the Acquirer s option; 3. Books, records, manuals, and operations reports, relating to the Revco Pharmacy Business, but only if the divestiture is to an Acquirer that does not already operate a pharmacy in any location; Decision and Order 118 F.TC. 4. Inventory instruction, or, at the Acquirer s option, lists of SKUs all forms, package sizes and other units in which prescription drugs are sold and which are used in records of sales and inventories;

5. Lists of all prescription drug customers, including but not limited to third party insurers, including all tiles of names, addresses and telephone numbers of the individual customer contacts, the unit and dollar amounts of sales, by product, to each customer, and store profit and loss statement(s);

6. All names and addresses of prescription drug manufacturers and distributors that supply or have supplied Revco within the six months preceding the date this order becomes final; and 7. Goodwill, tangible and intangible, utilized in the sale of prescription drugs.

J- Assets To Be Divested" means either the HSI Pharmacy Assets or the Revco Pharmacy Assets constituting the HSI Pharmacy Business or the Revco Pharmacy Business in the following cities or towns:

I. Covington, Virginia;

2. Marion, Virginia; and 3. Radford, Virginia.

K. Competitiveness, viability and marketability of the Assets To Be Divested mean that respondent shall continue the operation of the Assets To Be Divested in the ordinary course of business without material change or alteration that would adversely affect the value or goodwill of the Assets To Be Divested.

II.

It is further ordered That:

A. Respondent shall divest, absolutely and in good faith, within twelve (12) months of the date this order becomes final, the Assets To Be Divested.

B. Respondent shall divest the Assets To Be Divested only to an acquirer or acquirers that receive the prior approval of the Commission and only in a manner that receives the prior approval of REVCO D. . INe. 1025 1018 Decision and Order the Commssion. The purpose of the divestiture of the Assets To Be Divested is to ensure the continued use of the Assets To Be Divested as ongoing viable pharmacies engaged in the same businesses in which the Assets To Be Divested are presently employed and to remedy the lessening of competition resulting from the acquisition as alleged in the Commission s complaint.

C. Pending divestiture of the Assets To Be Divested, respondent shall take such actions as are necessar to maintain the competi ti veness, viability and marketability of the Assets To Be Divested and to prevent the destruction, removal, wasting, deterioration, or impairment of any Assets To Be Divested except for ordinary wear and tear. D. If a divestiture includes a lease of physical space, and if pursuant to that lease respondent through default of the lease or otherwise regains possession of the space, respondent must notify the Commission of such repossession within thirty (30) days and must redivest such assets or interest pursuant to paragraph II of this order within six (6) months of such repossession. If respondent has not redivested such assets or interest pursuant to paragraph II of this order within six (6) months of such repossession, the provisions of paragraph II shall apply to these assets.

It is further ordered That:

A. If respondent has not divested, absolutely and in good faith and with the Commission s prior approval, the Assets To Be Divested within twelve (12) months of the date this order becomes final, the Commission may appoint a trustee to divest the Assets To Be Divested- In the event the Commission or the Attorney General brings an action pursuant to Section 5(1) of the Federal Trade Commission Act 15 U.sc. 45(1), or any other statute enforced by the Commission respondent shall consent to the appointment of a trustee in such action. Neither the appointment of a trustee nor a decision not to appoint a trustee under this paragraph shall preclude the Commission or the Attorney General from seeking civil penalties or any other relief available to it, including a court-appointed trustee, pursuant to Section 5(1) of the Federal Trade Commission Act, or any other statute enforced by the Commission, for any failure by respondent to comply with this order.

Decision and Order 118FTC. B. If a trustee is appointed by the Commission or a court pursuant to paragraph !Ita. of this order, respondent shall consent to the following terms and conditions regarding the trustee s powers duties, authority, and responsibilities:

I. The Commission shall select the trustee, subject to the consent of respondent, which consent shall not be unreasonably withheld. The trustee shan be a person with experience and expertise in acquisitions and divestitures. If respondent has not opposed, in writing, including the reasons for opposing, the selection of any proposed trustee within ten (10) days after notice by the staff of the Commission to respondent of the identity of any proposed trustee respondent shall be deemed to have consented to the selection of the proposed trustee.

2. Subject to the prior approval of the Commission, the trustee shall have the exclusive power and authority to divest the Assets To Be Divested.

3. Within ten (10) days after appointment of the trustee, respondent shall execute a trust agreement that, subject to the prior approval of the Commission and, in the case of a court-appointed trustee, of the court, transfers to the trustee all rights and powers necessary to permit the trustee to effect the divestiture required by this order. 4- The trustee shall have twelve (12) months from the date the Commission approves the trust agreement described in paragraph II. 3. to accomplish the divestiture, which shall be subject to the prior approval of the Commission. If, however, at the end of the twelve-month period the trustee has submitted a plan of divestiture or believes that divestiture can be achieved within a reasonable time the divestiture period may be extended by the Commission, or in the case of a court-appointed trustee by the court. 5. The trustee shall have full and complete access to the personnel, books, records, and facilities related to the Assets To Be Divested, or to any other relevant information, as the trustee may reasonably request. Respondent shall develop such financial or other information as such trustee may reasonably request and shall cooperate with the trustee. Respondent shall take no action to interfere with or impede the trustee s accomplishment of the divestiture. Any delays in divestiture caused by respondent shall extend the time for divestiture under this paragraph in an amount equal to the REVCO D. , INe. 1027 1018 Decision and Order delay, as determined by the Commission or, for a court-appointed trustee, by the court.

6. The trustee shall use his or her best efforts to negotiate the most favorable price and terms available in each contract that is submitted to the Commission subject to respondent s absolute and unconditional obligation to divest at no minimum price. The divestiture shall be made in the manner and to the acquirer or acquirers as set out in paragraph II of this order. Provided, however, if the trustee receives bona jideoffers from more than one acquirer, and if the Commission detennnes to approve more than one such acquirer, the trustee shall divest to the acquirer or acquirers selected by respondent from among those approved by the Commission. 7. The trustee shall serve, without bond or other security, at the cost and expense of respondent, on such reasonable and customary terms and conditions as the Commission or a court may set. The trustee shall have authority to employ, at the cost and expense of respondent, such consultants, accountants, attorneys, investment bankers, business brokers, appraisers, and other representatives and assistants as are reasonably necessary to cary out the trustee s duties and responsibilities. The trustee shall account for all monies derived from the divestiture and all expenses incurred. After approval by the Commission and, in the case of a court-appointed trustee, by the court, of the account of the trustee, including fees for his or her services, all remaining monies shall be paid at the direction of respondent and the trustee s power shall be terminated. The trustee compensation shall be based at least in significant part on a commission arrangement contingent on the trustee s divesting the Assets To Be Divested.

8. Respondent shall indemnify the trustee and hold the trustee harmless against any losses, claims, damages, liabilities, or expenses arising out of, or in connection with, the performance of the trustee duties, and respondent shall either defend against such claims or pay the trustee s expenses, including all reasonable fees of counsel and other expenses incurred in connection with the preparations for, or defense of any such claim, whether or not resulting in any liability, except to the extent that such liabilities, losses, damages, claims, or expenses result from misfeasance, gross negligence, wi1Jul or wanton acts, or bad faith by the trustee.

9. If the trustee ceases to act or fails to act diligently, a substitute trustee shall be appointed in the same manner as provided in paragraph IILA. of this order.

Dccision and Order 118 F. 10. The Commission or, in the case of a court appointed trustee the court, may on its own initiative or at the request of the trustee issue such additional orders or directions as may be necessary or appropriate to accomplish the divestiture required by this order. 11. The trustee shall have no obligation or authority to operate or maintain the Assets To Be Divested.

12. The trustee shall report in writing to respondent and to the Commission every sixty (60) days concerning the trustee s efforts to accomplish divestiture.

IV.

It is further ordered That, for a period of ten (10) years from the date this order becomes final, respondent shall not, without the prior approval of the Commission, directly or indirectly, through subsidiares, parnerships, or otherwise: (A) Acquire any stock, share capital, equity, leasehold or other interest in any concern, corporate or non-corporate, presently engaged in, or within the six months preceding such acquisition engaged in, the business of selling prescription drugs at retail stores located in any of the cities or towns listed in paragraph I.(J). of this order; or (B) Acquire any assets used for, or previously used for (and still suitable for use for), the business of sellng prescription drugs at retail stores located in any of the cities or towns listed in paragraph I.(J). of this order from any concern, corporate or non-corporate, presently engaged in or within the six months preceding such acquisition engaged in, the business of sellng prescription drugs at retail stores located in any of the cities or towns listed in paragraph I.(J). of this order. Provided, however, that these prohibitions shall not relate to the construction of new facilities. It is further ordered That:

A. Within sixty (60) days after the date this order becomes final and every sixty (60) days thereafter until respondent has fully complied with the provisions of paragraphs II and II of this order respondent shall submit to the Commission a verified written report setting forth in detail the manner and form in which it intends to comply, is corpplying, and has complied with those provisions. Respon- REVCO D. , INe. 1029 1018 Decision and Order dent shall include in its compliance reports, among other things that are required from time to time, a full description of the efforts being made to comply with paragraphs II and II of the order, including a description of all substantive contacts or negotiations for the divestiture and the identity of all parties contacted. Respondent also shall include in its compliance reports copies of all written communications to and from such paries, all internal memoranda, and all reports and recommendations concerning divestiture. B. One (I) year from the date this order becomes final, annually thereafter for the next nine (9) years on the anniversary of the date this order became final, and at such other times as the Commission may require, respondent shall file a verified written report with the Commission setting forth in detail the manner and form in which it has complied and is complying with paragraph IV of this order. VI.

It is further ordered That respondent shall notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondent such as dissolution, assignment, sale resulting in the emergence of a successor corporation, or the creation or dissolution of subsidiaries or any other change in the corporation that may affect compliance obligations arising out of the order. VII.

It is further ordered, That, for the purpose of determining or securing compliance with this order, respondent shall permit any duly authorized representative of the Commission: A. Access, during office hours and in the presence of counsel, to inspect and copy all books, ledgers, accounts, correspondence, memoranda and other records and documents in the possession or under the control of respondent relating to any matters contained in this consent order; and B. Upon five (5) days notice to respondent, and without restraint or interference from it, to interview offcers, directors, or employees of respondent, who may have counsel present, regarding such matters.

Commissioner Varney not participating.

Complaint 118 F.