Penn Traffic Company

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IN THE MATTER OF THE PENN TRAFFIC COMPANY CONSENT ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF SEe. 7 OF THE CLAYTON ACT AND SEe. OF THE FEDERAL TRADE COMMISSION ACT Docket C-3577. Complaint, May 15, 1995- Decision, May 1995 This consent order pennits, among other things, the Penn Traffic Company to acquire a number of Acme supermarkets from American Stores Company, but requires it to divest, to a Commission approved acquirer or acquircrs within twelve months, one supermarket in each of the three Pennsylvania areas designated (Towanda. Mount Cannel, and Pittston). If the divestitures are not completed on time, the consent order penn its the Commission to appoint a trustee to complete the transactions. In addition, the consent order requires the respondent, for tcn years, to obtain Commission approval before acquiring any interest in any entity that owns or operates a sllpennarket in any of the three areas designated.

Appearances For the Commission: Ronald Rowe, Marimichael Skubel and Wiliam Baer.

For the respondent: Ken Hart, Donovan, Leisure, Newton & Irvine New York, N. Chris MacAvoy, Collier, Shannon, Rill & Scott Washington, D.

COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act and by virtue of the authority vested in it by said Act, the Federal Trade Commission ("Commission ), having reason to believe that respondent The Penn Traffic Company ("Penn Traffic ), a corporation, subject to the jurisdiction of the Commission, has acquired certain assets of American Stores Company ("American in violation of Section 7 of the Clayton Act, as amended, 15 U. 18, and Section 5 of the Federal Trade Commission Act, as amended 15 U. e. 45, and that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows:

Complaint 119 F.TC. DEFINInONS 1. For the purposes of this complaint, the following definition shall apply:

Supermarket means a full-line retail grocery store that carries a wide variety of food and grocery items in particular product categories, including bread and dairy products; refrigerated and frozen food and beverage products; fresh and prepared meats and poultry; produce, including fresh fruits and vegetables; shelf-stable food and beverage products, including canned and other types of packaged products; staple foodstuffs, which may include salt, sugar flour, sauces, spices, coffee, and tea; and other grocery products including nonfood items such as soaps, detergents, paper goods, other household products, and health and beauty aids. THE PENN TRAFFIC COMPANY 2. Respondent Penn Traffic is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its executive offices located at 1200 State Fair Boulevard, Syracuse, New York.

3. Respondent Penn Traffc is, and at aJl times relevant herein has been, engaged in the operation of supermarkets in Pennsylvania. 4. Respondent Penn Traffic is, and at aJl times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U. e. 12, and is a corporation whose business is in or affecting commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, IS e. 44.

ACQUISITON 5. On or about September 30, 1994, Penn Traffc entered into an agreement with American whereby Penn Traffic is to purchase 45 supermarkets, which operate under the trade name "Acme " from American s subsidiary, Acme Markets, Inc. THE PENN TRAFFIC COMPANY 639 637 Complaint TRADE AND COMMERCE 6. Relevant line of commerce in which to analyze the effects of the acquisition described herein is the retail sale of food and grocery products in supermarkets.

7. Relevant sections of the country in which to analyze the acquisition described herein are the following locations: a) The Towanda, Pennsylvania area, which includes the Borough of Towanda and the townships of Wysox, North Towanda, and Monroeton;

b) The Mount Carel, Pennsylvania area, which includes the Borough of Mount Carmel and the Township of Mount Carel; and c) The Pittston, Pennsylvania area, which includes the city of Pittston, the townships of Pittston and Jenkins, and the boroughs of Dupont, A voca, Hughestown, Duryea, Yatesville, and Laflin, Pennsylvania.

MARKET STRUCTURE 8. The retail sale of food and grocery products in supennarkets in the relevant sections of the country is concentrated, whether measured by the Herfndahl-Hirschmann Index (commonly referred to as "HHI") or by two-firm and four-firm concentration ratios. ENTRY CONDITONS 9. Entry into the retail sale of food and grocery products in supermarkets in the relevant sections of the country is difficult and would not be timely, likely, or suffcient to prevent anticompetitive effects in the relevant sections of the country. ACTUAL COMPETITON 10. Prior to the acquisition described herein, Penn Traffic and American were actual competitors in the relevant line of commerce and sections of the country.

Decision and Order 119 FTC. EFFECTS 11. The effect of the acquisition may be substantially to lessen competition in the relevant lines of commerce in the relevant sections of the country in violation of Section 7 of the Clayton Act, as amended, 15 U. e. 18, and Section 5 of the Federal Trade Commssion Act, as amended, 15 U. e. 45, in the following ways among others:

a, By eliminating direct competition between supermarkets owned or controlled by Penn Traffic and supermarkets owned or controlled by American;

b, By increasing the likelihood that Penn Traffic will unilaterally exercise market power; and c. By increasing the likelihood of, or facilitating, collusion or coordinated interaction Each of which increases the likelihood that the prices of food groceries, or services wi1 increase, and the quality and selection of food, groceries, or services will decrease, in the relevant sections of the country.

VIOLA DONS CHARGED 12. The acquisition by Penn Traffic of assets of American violates Section 7 of the Clayton Act, as amended, 15 U, e. 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U. e. 45. DECISION AND ORDER The Federal Trade Commission having initiated an investigation of the acquisition by The Penn Traffic Company ("respondent ) of certain assets of American Stores Company and respondent, having been furnished with a copy of a draft complaint that the Bureau of Competition proposed to present to the Commission for its consideration, and which, if issued by the Commssion, would charge respondent with violations of the Clayton Act and Federal Trade Commission Act; and Respondent, its attorneys, and counsel for the Commission having thereafter executed an agreement containing a consent order, an THE PENN TRAFFIC COMPANY 641 637 Decision and Order admission by respondent of all the jurisdictional facts set forth in the aforesaid draft of 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 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 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, and having duly considered the comments filed thereafter by interested persons pursuant to Section 34 of its Rules, now in further conformity with the procedure prescribed in Section 2.34 of its Rules, the Commssion hereby issues its complaint, makes the following jurisdictional findings and enters the following order:

1, Respondent The Penn Traffic Company is a Delaware corporation, with its offce and principal place of business at 1200 State Fair Boulevard, Syracuse, New York. 2. The Federal Trade Commssion has jurisdiction of the subject matter of this proceeding and ofrespondent, and the proceeding is in thc public interest.

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

A. Respondent or Penn Traffc means The Penn Traffic Company, its predecessors, subsidiaries, divisions, and groups and affliates controlled by The Penn Traffic Company, their successors and assigns, and their directors, offcers, employees, agents, and representatives.

B. Assets to be divested" means the assets described in paragraph 11. A. of this order.

e. Commission means the Federal Trade Commission, Decision and Order 119 FTC. D. Supermarket means a full-line retail grocery store that cares a wide variety offood and grocery items in particular product categories, including bread and dairy products; refrigerated and frozen food and beverage products; fresh and prepared meats and poultry; produce, including fresh fruits and vegetables; shelf-stable food and beverage products, including canned and other types of packaged products; staple foodstuffs, which may include salt, sugar flour, sauces, spices, coffee, and tea; and other grocery products, including nonfood items such as soaps, detergents, paper goods, other household products, and health and beauty aids. II.

It is further ordered, That:

A. Respondent shall divest, absolutely and in good faith, within twelve months from the date this order becomes final: 1. The "Acme" supermarket located at River and Park Streets Borough of Towanda, Pennsyl vania;

2. The "Acme" supermarket located on Kennedy Boulevard in Pittston, Pennsylvania; and 3. An "Acme " or a Penn Traffc supermarket located in the Township of Mount Carmel, Pennsylvania.

The assets to be divested shall include the grocery business operated, and all assets, leases, properties, business and goodwil tangible and intangible, utilized in the distribution or sale of groceries at the locations that are divested.

B. Respondent shall divest the assets to be divested only to an acquirer or acquirers that receive the prior approval of the Commssion and only in a manner that receives the prior approval of the Commission. The purpose of the divestiture is to ensure the continuation of the assets to be divested as ongoing, viable enterprises engaged in the supermarket business and to remedy the lessening of competition resulting from the acquisition as alleged in the Commission s complaint.

e. Pending divestiture of such assets to be divested, respondent shall take such actions as are necessary to maintain the viability and marketability of such assets to be divested and to prevent the THE PENN TRAFFIC COMPANY 643 637 Decision and Order destruction, removal, wasting, deterioration, or impairment of such assets to be divested except in the ordinary course of business and except for ordinary wear and tear.

D. Respondent shall comply with all the terms of the Asset Maintenance Agreement attached to this order and made a par hereof as Appendix 1. The Asset Maintenance Agreement shall continue in effect untij such time as respondent has divested all of the assets to be di vested.

It isfurther ordered That:

A. If respondent has not divested, absolutely and in good faith and with the Commission s prior approval, such assets to be divested within twelve months from the date this order becomes final, the Commission may appoint a trustee to divest any of the remaining assets to be divested. In the event that the Commission or the Attorney General brings an action pursuant to Section 5(1) of the Federal Trade Commission Act, 15 U. e. 45(1), or any other statute enforced by the CDmmission, 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 Commssion or the Attorney General from seeking civil penalties or any other relief available to it, including a courtappointed trustee, pursuant to Section 5(1) of the Federal Trade Commission Act, or any other statute enforced by the Commission for any failure by the respondent to comply with this order. B. If a trustee is appointed by the Commission or a court pursuant to paragraph II. A. of this order, respondent shall consent to the following terms and conditions regarding the trustee s powers, duties authority, and responsibilities:

1. The Commssion shall select the trustee, subject to the consent of respondent, which consent shall not be unreasonably withheld. The trustee shall 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 written notice by the staff of the Commission to respondent of the identity of any proposed Decision and Order 119 F. 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 any of the remaining 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 divestitures required by this order.

4. The trustee shall have twelve (12) months from the date the Commission or court approves the trust agreement described in paragraph II. B. 3. to accomplish the divestitures, 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 Commssion, or, in the case of a court-appointed trustee, by the court; provided, however, the Commission may extend this 12-month period only two (2) times.

5. The trustee shall have full and complete access to the personnel, books, records and facilities related to any of the remaining assets to be divested or to any other relevant information, as the trustee may 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 divestitures. Any delays in divestiture caused by respondent shall extend the time for divestiture under this paragraph in an amount equal to the delay, as determined by the Commission or, for a courtappointed 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 divestitures 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 fide offers in any of the areas specified in this order for a supermarket to be divested from more than one THE PENN TRAFFIC COMPANY 645 637 Decision and Order acquiring entity, and if the Commission determines to approve more than one acquiring entity, the trustee shall divest to the acquiring entity or entities 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 the 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 necessary to carry out the trustee s duties and responsibilities. The trustee shall account for a1l monies derived from the sale and a1l 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 the respondent, and the trustee s power shall be terminated. The trustee compensation shall be based at least in significant part on a commission arangement contingent on the trustee s divesting the assets to be divested to satisfy paragraph 11. 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, including all reasonable fees of counsel and other expenses incurred in connection with the preparation for, or defense of any 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, willful 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 111. A. of this order.

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 he 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.

Decision and Order 119 F.T.c. 12. The trustee shall report in writing to respondent and 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 subsidiaries, partnerships, or otherwise: A. Acquire any stock, share capital, equity, or other interest in any supermarket or leasehold interest in any supermarket, including any facility that has operated as a supermarket within six (6) months of the date of the proposed acquisition, located in a) the Towanda Pennsylvania area, which includes the Borough of Towanda and the townships ofWysox, North Towanda, and Monroeton; b) the Mount Carmel, Pennsylvania area, which includes the Borough of Mount Carel and the Township of Mount Carmel; and c) the Pittston Pennsylvania area, which includes the city of Pittston, the townships of Pittston and Jenkins, and the boroughs of Dupont, Avoca Hughestown, Duryea, Yatesville, and Laflin, Pennsylvania. B. Acquire any stock, share capital, equity, or other interest in any entity that owns any interest in or operates any supermarket or owned any interest in or operated any supermarket within six (6) months of the date of the proposed acquisition in a) the Towanda, Pennsylvania area, which includes the Borough of Towanda and the townships of Wysox, North Towanda, and Monroeton; b) the Mount Carmel, Pennsylvania area, which includes the Borough of Mount Carel, and the Township of Mount Carmel; and c) the Pittston Pennsylvania area, which includes the city of Pittston, the townships of Pittston and Jenkins, and the boroughs of Dupont, Avoca Hughestown, Duryea, Yatesville, and Lafln, Pennsylvania. Provided, however, that these prohibitions shall not apply to the construction of new facilities or the leasing of facilities that have not operated as supermarkets within six months of the date of the offer to lease.

THE PENN TRAFFIC COMPANY 647 637 Decision and Order 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. or II. of this order respondent shall submit to the Commission verified written reports setting forth in detail the manner and form in which it intends to comply, is complying, and has complied with paragraphs II. and II. of this order. Respondent 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 shall include in its compliance reports copies of all written communications to and from such parties, all internal memoranda, and all reports and recommendations concerning divestiture, B. One year (I) from the date this order becomes final, annually for the next nine (9) years on the anniversary of the date this order becomes final, and at other times as the Commission may require respondent shall file verified written reports with the Commission setting forth in detail the manner and form in which it has complied and is complying with this order.

VI.

It isfurther ordered That respondent shall notify the Commission at least thirty (30) days prior to any proposed change in 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 respondent 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: Decision and Order 119 F. A. Upon reasonable notice to respondent, access, during office hours and in the presence of counsel, to inspect and copy all books, ledgers, accounts, cOlTespondence, memoranda and other records and documents in the possession or under the control of respondent relating to any matters contained in this order; and B. Upon reasonable notice to respondent and without restraint or interference from it, to interview respondent or offcers, directors, or employees of respondent in the presence of counsel. V11 It is further ordered That this order shall terminate twenty (20) years from the date this order becomes final. APPENDIX I ASSET MAINTENANCE AGREEMENT This Asset Maintenance Agreement ("Agreement ) is by and between The Penn Traffc Company ("Penn Traffic ), a corporation organized under the laws of the State of Delaware, with its principal offices located at 1200 State Fair Boulevard, Syracuse, New York and the Federal Trade Commssion ("Commission ), an independent agency of the United States Government, established under the Federal Trade Commission Act of 1914, 15 U. e. 41 et seq. (collectively "the Parties PREMISES Whereas Penn Traffc, pursuant to an agreement dated September 30, 1994, agreed to purchase certain assets of American Stores Company (hereinafter "Acquisition ); and Whereas, the Commission is now investigating the Acquisition to determine if it would violate any of the statutes enforced by the Commission; and Whereas, if the Commission accepts the agreement containing consent order, the Commission is required to place it on the public record for a period of sixty (60) days for public comment and may subsequently withdraw such acceptance pursuant to the provisions of Section 2,34 of the Commission s Rules; and THE PENN TRAFFIC COMPANY 649 637 Decision and Order Whereas, the Commssion is concerned that if an agreement is not reached preserving the status quo ante of the assets to be divested as described in paragraph II. A. of the attached agreement containing consent order ("Assets ) during the period prior to their divestiture when those Assets will be in the hands of Penn Traffc, that any divestiture resulting from any administrative proceeding challenging the legality of the Acquisition might not be possible, or might produce a less than effective remedy; and Whereas, the Commission is concerned that prior to divestiture to the acquirer, it may be necessary to preserve the continued viability and competitiveness of the Assets; and Whereas, the purpose of this Agreement and of the consent order is to preserve the Assets pending the divestiture to the acquirer approved by the Federal Trade Commission under the terms of the order, in order to remedy any anticompetitive effects of the Acquisition; and Whereas Penn Traffic entering into this Agreement shall in no way be construed as an admission by Penn Traffic that the Acquisition is illegal; and Whereas Penn Traffic understands that no act or transaction contemplated by this Agreement shall be deemed immune or exempt from the provisions of the antitrust laws, or the Federal Trade Commission Act by reason of anything contained in this Agreement; Now, therefore in consideration of the Commssion s agreement that, unless the Commission determines to reject the consent order it wil not seek further relief from the parties with respect to the Acquisition, except that the Commission may exercise any and all rights to enforce this Agreement and the consent order annexed hereto and made a part thereof, and, in the event the required divestiture is not accomplished, to appoint a trustee to seek divestiture of the Assets, the Parties agree as follows: TERMS OF AGREEMENT 1. Penn Traffic agrees to execute, and upon its issuance to be bound by, the attached consent order. The Parties further agree that each term defined in the attached consent order shall have the same meaning in this Agreement.

2. Unless the Commission brings an action to seek to enjoin the proposed acquisition pursuant to Section 13(b) of the Federal Trade Decision and Order 119 FTC. Commission Act, 15 U. e. 53(b), and obtains a temporar restraining order or preliminary injunction blocking the proposed acquisition, Penn Traffc will be free to close the Acquisition after 11:59 p. , January 17, 1995.

3, Penn Traffic agrees that from the date this Agreement is accepted until the earliest of the dates listed in subparagraphs Il.A - 111.B it wil comply with the provisions of this Agreement: a. Three business days after the Commission withdraws its acceptance of the consent order pursuant to the provisions of Section 34 of the Commission s Rules; or b. On the day the divestiture set out in the consent order has been completed.

4. From the time Penn Traffic acquires the Assets until the divestiture set out in the consent order has been completed, Penn Traffc shall maintain the viability, competitiveness and marketability of the Assets, and shall not cause the wasting or deterioration of the Assets, nor shall it sell, transfer, encumber or otherwise impair their marketability or viability.

5. Should the Commssion seek in any proceeding to compel Penn Traffc to divest itself of the Assets or to seek any other injunctive or equitable relief, Penn Traffic shall not raise any objection based upon the expiration of the applicable Hart-Scott-Rodino Antitrust Improvements Act waiting period or the fact that the Commission has not sought to enjoin the Acquisition. Penn Traffic also waives all rights to contest the validity of this Agreement. 6. For the purpose of detcrmining or securing compliance with this Agreement, subject to any legally recognized privilege, and upon written request with reasonable notice to Penn Traffic to its principal offices, Penn Traffic shall permt any duly authorized representative or representatives of the Commission:

a. Access during the office hours of Penn Traffc, 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 Penn Traffic relating to compliance with this Agreement; and THE PENN TRAFFIC COMPANY 651 637 Decision and Order b. Upon five (5) days' notice to Penn Traffc and without restraint or interference from them, to interview offcers or employees of Penn Traffic, who may have counsel present, regarding any such matters, 7. This Agreement shall not be binding until approved by the Commission.

Complaint 119 FTC.