MTH Holdings, Inc

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IN THE MATTER OF MTH HOLDINGS, INC., ET AL.

CONSENT ORDER, ETC. , IN REGARD TO ALGED VIOLATION OF SEC. 7 OF THE CLAYTON ACT AND SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket C-3266. Complaint, Oct. 1989-Decisi, Oct. , 1989 This consent order requires, among other things, MTH, an investment banking firm to divest grocery stores in Vermont and New York to eliminate antitrust concerns that would be created by its acquisition of GU Acquisition Corporation, a holding company that owns and operates the Grand Union Company grocery store chain. In addition, for ten years, MTH must seek prior FTC approval before acquiring any grocery stores in any of the New York or Vermont counties in which the divestitures must be made.

Appearances For the Commission: David Conn, Daniel P. Duore and Ronald B. Rowe.

For the respondents: William Pelster, Mohr, Skadden, Arys Meagher Flom Washington, D. C. Mark Leddy, Cleary, Gottlieb Steen Hamilton Washington, D. C. and Kenneth E. Newman Donovan, Leisure, Newton Irvne New York City. COMPLANT 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 the respondents, MTH Holdings, Inc. and GV Acquisition Corporation . corporations subject to the jurisdiction of the Commission, have entered into an agreement, described in paragraph 8 herein, that, if consummated, would violate the provisions of Section 7 of the Claytn Act, as amended, 15 V. C. 18, and Section 5 of the Federal Trade Commission Act, 15 V. C. 45; that said agreement and the actions of the respondents to implement that agreement constitute violations of Section 5 of the FTC Act, 15 V. C. 45; and it appearing to the Commission that a proceeding by it in respect thereof would be in the , , 488 Complaint public interest, hereby issues its complaint, stating its charges as follows:

DEFINITIONS 1. For the purposes of this complaint, the following definitions shall apply:

a. Retail grocer store means any retail food store of 10 000 or more square feet and which sells primarily a variety of canned or frozen foods; dry groceries; nonedible grocery items; fresh meat poultry and produce (vegetables and fruits) and which often sells delicatessen items, bakery items, fresh fish or other specialty items. b. & C" means P & C Food Markets, Inc., its parents, including The Penn Traffc Company and MTH Holdings, Inc., predecessors subsidiaries, divisions and groups controlled by P & C and their respective directors, offcers, partners, employees, agents and representatives, and their successors and assigns. c. Grand Union means The Grand Union Company, an indirect wholly owned subsidiary of GU Acquisition Corporation, through which GU Acquisition Corporation is engaged in the retail grocery business. Grand Union includes its parents, predecessors, subsidiaries divisions, groups and affliates controlled by GU Acquisition Corporation and their respective directors, offcers, employees, agents partners, and representatives, and their respective successors and assigns.

MTH HOLDINGS 2. Respondent MTH Holdings, Inc. is a corporation organized existing and doing business under and by virtue of the laws of New York with its executive offces located at 331 Madison Avenue, New York, New York.

3. Respondent MTH Holdings is, and at all times relevant herein has been, engaged in the retail sale and distribution of food and grocery items in retail grocery stores. For the year ending December 31 , 1988 P & C, a subsidiary of MTH Holdings, Inc. , had net sales of $1.1 bilion.

4. Respondent MTH Holdings is, and at all 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 490 FEDERA TRADE COMMISSION DECISIONS Complaint 112 F.

, 15in Section 4 of the Federal Trade Commission Act, as amended C. 44.

GU ACQUISITION CORPORATION 5. Respondent GU Acquisition Corporation is a corporation organized, existing and doing business under and by virtue of the laws of Delaware with its executive offces located at 25 Old Kings Highway Road, Darien, Connecticut.

6. Respondent GU Acquisition Corporation is, and at all times relevant herein has been, engaged in the retail sale and distribution of food and grocery items in retail grocery stores. For the year ending December 31 , 1988, Grand Union, a suhsidiary of GU Acquisition Corporation, had net sales of $2.5 billon. 7. Respondent GU Acquisition Corporation is, and at all times " isrelevant herein has been, engaged in commerce as "commerce C. 12defined in Section 1 of the Clayton Act, as amended, 15 U. 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, 15 U. C. 44.

ACQUISITION 8. On or about April 11 , 1989, MTH Holdings and Salomon Inc entered into an agreement with GU Acquisition Corporation whereby MTH Holdings and Salomon Inc wil purchase the assets and operations of Grand Union. There are 22 cities and towns where both Grand Union and P & C operate retail grocery stores. TRADE AND COMMERCE A. Relevant Line of Commerce 9. A relevant line of commerce in which to analyze MTH Holdings and Salomon Inc s acquisition of GU Acquisition Corporation is the retail sale and distribution of food and grocery items in retail grocery stores.

B. Relevant Sections of lhe Country 10. Relevant sections of the country are the following towns and cities:

a. Cobleskil, New York;

b. Oneonta, New York;

c. Ticondermra. New York:

488 Complaint d. Barr/Montpelier/Berlin, Vermont;

e. Bennington, Vermont;

f. Brattleboro, Vermont;

g. Burlington, Vermont Metropolitan Statistical Area; h. Manchester, Vermont;

1. Morrsville, Vermont;

j. Rutland/North Clarendon/West Rutland, Vermont; k. Springfeld, Vermont; arid I. Windsor, Vermont.

MARKET STRUCTURE 11. The retail sale of food and grocery items in retail grocery stores in the relevant sections of the country is highly concentrated, whether measured by the Herfndahl-Hirschmann Index ("HHI") or by twofirm and four-firm concentration ratios.

ENTRY CONDITIONS 12. Entry into the retail sale of food and grocery items in retail grocery stores in the relevant sections of the country described in paragraph 10 is diffcult.

ACTUAL COMPETITION 13. Grand Union and P & C are actual competitors in the relevant line of commerce and sections of the country described in paragraphs 9 and 10.

EFFECTS 14. The effect of the acquisition, if consummated, may be substantially to lessen competition in the relevant line of commerce in the relevant sections of the country in violation of Section 7 of the Claytn Act, 15 U. C. 18, and Section 5 of the Federal Trade Commission Act, 15 U. C. 45, in the following ways, among others: a. By eliminating direct competition between Grand Union and P & b. By increasing the likelihood that P & C wil unilaterally exercise market power; or c. By increasing the likelihood of, or faciltating, collusion all of which increases the likelihood that firms wil increase prices and restrict output of food and groceries both in the near future and for a longer period of time.

492 FEDERA TRAE COMMISSION DECISIONS Decision and Order 112 F.

VIOLATIONS CHAGED 15. The proposed acquisition of Grand Union by MTH Holdings and Salomon Inc violates Section 5 of the Federal Trade Commission Act 15 U. C. 45, and would, if consummated, violate Section 7 of the Claytn Act, 15 U. C. 18 and Section 5 of the Federal Trade Commission Act, 15 U. C. 45.

DECISION AND ORDER The Federal Trade Commission ("the Commission ), having initiated an investigation of the transaction pursuant to which MTH Holdings, Inc. ("MTH") and Salomon Inc ("Salomon ) will acquire the Acquisition Corporationissued and outstanding stock of GU GUAC") and MTH and GUAC (collectively, "Respondents ), 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 Commission, would charge the respondents with violations of Section 5 of the Federal Trade Commission Act, as amended, 15 U. C. 45, and Section 7 of the Clayton Act, as amended, 15 U. C. 18; and Respondents, their attorneys, and counsel for the Commission having thereaftr executed an agreement containing a consent order an admission by respondents of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settement purposes only and does not constitute an admission by respondents 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 respondents have violated Section 5 and Section 7, 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, 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:

1. Respondent MTH Holdings, Inc. is a corporation organized existing and doing business under and by virtue of the laws of New g.

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488 Decision and Order York with its executive offces located at 331 Madison Avenue, New York, New York.

2. Respondent GU Acquisition Corporation is a corporation organized, existing and doing business under and by virtue of the laws of Delaware with its executive offices located at 25 Old Kings Highway Road, Darien, Connecticut.

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

ORDER As used in this order, the following definitions shall apply: a. Acquisition means MTH' s acquisition of the issued and outstanding common stock of GUAC.

b. Commission means the Federal Trade Commission. c. GND Holdings Cororation means the entity formed by MTH and Salomon to acquire GUAC. GND Holdings Corporation includes its successors and assigns.

d. The Grand Union Company means an indirect wholly owned subsidiary of GUAC, through which GUAC is engaged in the retail grocery business. The Grand Union Company includes its parents predecessors, subsidiaries, divisions, groups and affliates controlled by GUAC and their respective directors, offcers, employees, agents partners, and representatives, and their respective successors and assigns.

e. GUAC" means GU Acquisition Corporation, its parents predecessors, subsidiaries, divisions, groups and affliates controlled by GUAC and their respective directors, offcers, employees, agents partners, and representatives, and their respective successors and assigns.

f. MTH" means MTH Holdings, Inc., its parents, predecessors subsidiaries, divisions, groups and affiliates controlled by MTH (including P&C Food Markets, Inc.) and their respective directors offcers, employees, agents, partners, and representatives, and their respective successors and assigns.

Responents means GUAC and MTH.

h. Retail grocer store means any retail food store of 10 000 or j.

Decision and Order 112 F. more square feet and which sells primarily a variety of canned or frozen foods; dry groceries; non-edible grocery items; fresh meat poultry and produce (vegetables and fruits) and which often sells delicatessen items, bakery items, fresh fish or other specialty items. i. Schedule A Properties means the assets and businesses listed in Schedule A of this order.

Schedule B Properties means the assets and businesses listed in Schedule B of this order.

k. Properties means the Schedule A Properties and the Schedule B Properties.

II.

It is ordered That:

(A) Within nine (9) months of the date this order becomes final, the respondents shall divest, absolutely and in good faith (a) the Schedule A Properties, as well as any additional assets and businesses that (i) the respondents may at their discretion include as a part of the assets to be divested and are acceptable to the acquiring entity and the Commission, or (ii) the Commission shall require to be divested to ensure the divestiture of the Schedule A Properties as ongoing, viable enterprises, engaged in the businesses in which the Properties are presently employed. Provided, however the respondents may only divest the stores of P&C Food Markets, Inc. listed in Schedule A if such stores have been operated consistent with past practices and the respondents have in no way acted to reduce the value or competitive viabilty of such stores. Provided, further the respondents shall have twelve (12) months from the date this order becomes final to divest absolutely and in good faith the Schedule A property in Bennington Vermont.

(B) The Agreement to Hold Separate, attached hereto and made a part hereof as Appendix I, shall continue in effect until such time as the respondents have divested either the Schedule A Properties or a trustee has divested the Schedule B Properties or until such other time as the Agreement to Hold Separate provides, and the respondents shall comply with all terms of said Agreement. (C) Divestiture of the Properties shall be made 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 the Commission. The purpose of the divestiture of the Properties is to ensure the ..... .

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488 Decision and Order continuation of the assets as ongoing, viable retail grcery stores engaged in the same businesses in which the Properties are presently employed and to remedy the lessening of competition resulting from the Acquisition as alleged in the Commission s complaint. (D) The respondents shall take such action as is necessary to maintain the viabilty and marketabilty of the Properties and shall not cause or permit the destruction, removal or impairment of any assets or businesses to be divested except in the ordinary course of business and except for ordinary wear and . tear.

III.

It is further ordered That:

(A) If the respondents have not divested, absolutely and in good faith and with the Commission s approval, the Schedule A Properties within the time set out in paragraph U(A), the respondents shall consent to the appointment by the Commission of a trustee to divest the Sched\lle B Properties. In the event that the Commission brings an action pursuant to 5 Q), of the Federal Trade Commission Act, 15 C. 45 Q), or any other statute enforced by the Commission, the respondents shall consent to the appointment of a trustee in such action. The appointment of a trustee shall not preclude the Commi sion from seeking civil penalties or any other relief available to it for any failure by the respondents 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, the respondents shall consent to the following terms and conditions regarding the trustee s duties and responsibilties:

(1) The Commission shall select the trustee, subject to the consent of the respondents, which consent shall not be unreasonably withheld. The trustee shall be a person with experience and expertise in acquisitions and divestitures.

(2) The trustee shall have the power and authority to divest the Schedule B Properties.

(3) The trustee shall have eighteen (18) months from the date of appointment to accomplish the divestiture, which shall be subject to the prior approval of the Commission and, if the trustee is appointed by a court, subject also to the prior approval of the court. If, however at the end of the eighteen-month period the trustee has submitted a plan of divestiture or believes that divestiture can be achieved within a 496 FEDERA TRADE COMMISSION DECISIONS Decision and Order 112 F.

reasonable time, the divestiture period may be extended by the Commission, or by the court for a court-appointed trustee. Provied however, that the Commission or court may only extend the divestiture period two (2) times.

(4) The trustee shall have full and complete access to the personnel books, records and facilties related to those assets that the trustee has the duty to divest. The respondents shall develop such financial or other information as such trustee may reasonably request and shall cooperate with any reasonable request of the trustee. The respondents shall take no action to interfere with or impede the trustee accomplishment of the divestitures.

(5) Subject to the respondents' absolute and unconditional obligation to divest at no minimum price and the purpose of the divestiture as stated in paragraph II(C) of this order, the trustee shall use his or her best efforts to negotiate the most favorable price and terms available with each acquiring entity for the divestiture of the Schedule B Properties. The divestiture shall be made in the manner set out in paragraph II(C); provided, however if the trustee receives bona fide offers from more than one acquiring entity or entities, and if the Commission determines to approve more than one such purchaser, the trustee shall divest to the acquiring entity or entities selected by the respondents from among those approved by the Commission. (6) The trustee shall serve at the cost and expense of the respondents, on such reasonable and customary terms and conditions as the Commission or a court may set, including the employment of accountants, attorneys or other persons reasonably necessary to carry out the trustee s duties and responsibilties. The trustee shall account for all monies derived from the sale and all expenses incurred. Aftr 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 servces, all remaining monies shall be paid at the direction of the respondents and the trustee s power shall be terminated. The trustee s compensation shall be based at least in significant part on a commission arrangement contingent on the trustee s divesting the Schedule B Properties.

(7) Within sixty (60) days after appointment of the trustee, and mbject to the prior approval of the Commission and, in the case of a court-appointed trustee, of the court, the respondents shall execute a rust agreement that transfers to the trustee all rights and powers lecessary to permit the trustee to effect the divestiture. MTH HULULNt.::, lNLi., 1'1 AL.

488 Decision and Order (8) 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 II (A) of this order.

(9) The trustee shall report in writing to the respondents and the Commission every sixty (60) days from the date of appointment concerning the trustee s efforts to accomplish divestiture. IV.

It isfurther ordered That, within sixty (60) days aftr the date this order becomes final and every sixty (60) days thereafter until the respondents have fully complied with the provisions of paragraphs II and II of this order, the respondents shall submit to the Commission a verified written report settng forth in detail the manner and form in which they intend to comply, are complying or have complied with those provisions. The respondents shall include in their compliance reports, among other things that are required from time to time, a full description of substantive contacts or negotiations for the divestiture of assets or businesses specified in paragraph II of this order including the identity of all parties contacted. The respondents also shall include in their compliance reports, copies of all written communications to and from such parties, all internal memoranda reports and recommendations concerning divestiture, and a description of the status of all regulatory proceedings filed in accordance with this order.

It is further orered That, for a period commencing on the date this order becomes final and continuing for ten (10) years, the respondents shall cease and desist from acquiring, without the prior approval of the Federal Trade Commission, directly or indirectly, through subsidiaries or otherwise, any retail grocery store or leasehold interest in any retail grocery store, including any facility that has operated as a retail grocery store within six (6) months of the date of the offer of purchase, or any interest in or the stock or share capital of any entity that owns any interest in or operates any retail grocery store or any interest in or the stock or share capital of any entity that owned any interest in or operated any retail grocery store within six (6) months of the date of the offer of purchase in the following counties:

).

498 FEDERA TRADE COMMISSION DECISIONS Decision and Order 112 F.

1. Chittenden County, Vermont 6. Windsor County, Vermont 2. Windham County, Vermont 7. Bennington County, Vermont 3. Rutland County, Vermont 8. Essex County, New York 4. Washington County, Vermont 9. Schoharie County, New York 5. Lamoile County, Vermont 10. Otsego County, New York. (Hereinaftr "Retail Grocery Interests Provided, however that these prohibitions shall not relate to the construction of new facilties or the leasing of facilties that have not operated as retail grocery stores within six months of the date of the offer to lease. Provided that the respondents may acquire, for investment purposesfurther only, an interest of not more than five (5) percent of the stock or share capital of any concern. Provided, additionally, only if, the respondents have provided the Commission with thirty (30) days prior notice of the acquisition set out in this proviso, these prohibitions shall not relate to the acquisition of an interest in the stock or capital share of any concern that has no Retail Grocery Interests at the time the respondents announce to the public an intention to acquire an interest in the concern and has no more than 40 000 square feet of Retail Grocery Interests at the time of the acquisition of the stock or capital share of said concern.

One (1) year from the date this order becomes final and annually for nine (9) years thereafter the respondents shall fie with the Federal Trade Commission a verified written report of their compliance with this paragraph.

VI.

It is further ordered That the respondents shall notify the Federal Trade Commission at least thirty (30) days prior to any proposed change in the corporation such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation dissolution or sale of subsidiaries or any other change that may affect compliance obligations arising out of the order. SCHEDULE A Assets, Interests and Businesses The retail grocery stores presently owned or operated by The Grand Union Company or by P&C Food Markets, Inc. in the following I....n ;"..n.

, , .

488 Decision and Order One (1) in Morrsvile, Vermont;

One (1) in Barre/Montpelier/Berlin, Vermont; One (1) in Windsor, Vermont;

One (1) in Springfeld, Vermont;

One (1) in Brattleboro, Vermont;

One (1) in Bennington, Vermont;

One (1) in Manchester, Vermont;

Two (2) in the Rutland, Vermont area, which area shall include North Clarendon and West Rutland, Vermont; 9. Four (4) in the Burlington, Vermont, Metropolitan Statistical Area;

10. One (1) in Cobleskil, New York;

11. One (1) in Ticonderoga, New York; and 12. One (1) in Oneonta, New York.

The assets to be divested shall include the grocery business operated, all assets, inventory, leases, properties, business and goodwill, tangible and intangible, utilzed in the distribution or sale of groceries at the listed locations.

SCHEDULE B Assets, Interests and Businesses All the retail grocery stores presently owned or operated by The Grand Union Company in the following locations: 1. Chittenden County, Vermont 2. Windham County, Vermont Rutland County, Vermont 3. 4. Washington County, Vermont 5. Lamoile County, Vermont Windsor County, Vermont 6.

Bennington County, Vermont 7.

8. Ticonderoga, New York Schoharie County, New York 9.

10. Otsego County, New York.

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

500 FEDERA TRADE COMMISSION DECISIONS Complaint 112 F.