Rite Aid Corporation

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IN THE MA TTER OF RITE AID CORPORATION MODIFYING ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF SEC. 7 OF THE CLAYTON ACT AND SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket 3546. Consent Order, Dec. 1994-Modifing Order, May 1998 This order reopens a 1994 consent order -- that required the respondent to divest the Bucksport asset and two other pharmacies -- and this order modifies the consent order by eliminating the requirement to divest a retail pharmacy in Bucksport, Maine, that the company acquired when it bought the LaVerdiere chain of drug stores, and this order substitutes the prior approval requirement with prior notification and waiting period requirements. ORDER REOPENING AND MODIFYING ORDER On March 3 , 1998 , Rite Aid Corporation ("Rite Aid" ), the respondent named in the above-referenced consent order ("order issued by the Commssion on December J5 , 1994, filed its Petition to Reopen and Vacate Consent Order ("Petition ). Rite Aid asks that the Commssion reopen and set aside the order pursuant to Section 5(b) of the Federal Trade Commission Act ("FTC Act ), 15 U. 45(b), and Section 2.51 of the Commssion s Rules of Practice and Procedure, J 6 e.F.R. 2. 5 J , based on changed facts and the public interest and consistent with the Statement of Federal Trade Commission Policy Concerning Prior Approval And Prior Notice Provisions, issued on June 2J , 1995 ("Prior Approval Policy Statement ' The thirty- day public comment period on Rite Aid' Petition ended on April14, J998. No comments were received. The Commission has determined to grant, in part, Rite Aid' Petition by reopening the order and modifying it to set aside the requirements of paragraph II, but to deny the request to set aside the order in its entirety. Rather, the Commssion has determined to substitute for the prior approval requirement of paragraph IV prior notification and waiting period rcquirements based on those of Section 7A of the Clayton Act, J5 D. e. 18a, commonly referred to as the Hart-Scott-Rodino ("HSR" ) Act, for ajj non-HSR reportable acquisitions otherwise meeting the specifications of paragraph IV. The complaint in this matter alleges that Rite Aid' s acquisition of the voting stock of LaVerdiere s Enterprises, Inc. ("LEI"), would 1 60 Fed. Reg. 39745-47 (August 3, 1995); 4 Trade Reg. Rep. (CCH) 241. RITE AID CORPORATION 847 846 Modifying Order violate Section 5 of the FTC Act and Section 7 of the Clayton Act, 15 e. 18 , by Jessening competition and tending to create a monopoly in the market for the sale of prescription drugs in retail stores in the cities or towns of Bucksport, Maine; Lincoln, Maine; and Berlin, New Hampshire.

The resulting order became final on December 2 J , 1994 paragraph II of the order requires Rite Aid to divest within 12 months either the LEI Pharmacy Assets or the Rite Aid Pharmacy Assets, as those assets are defined in the order, in Bucksport, Lincoln, and Berlin. Paragraph II provides for the appointment of a trustee should Rite Aid fail to divest within the required period; paragraph IV prohibits, for ten years, specified acquisitions in the three cities or towns without prior Commssion approval; and paragraph V specifies Rite Aid's notification and reporting obligations. The purpose of the divestitures is to remedy the Jessening of competition in the market for the sale of prescription drugs in retaij stores in the three specified Rite Aid failed to divest within the time required cities and towns3 and the Commission approved the appointment of Mr. R. Steven Thing as trustee, on February 8, J 996 The trustee found acquirers for the Berlin, New Hampshire, and Lincoln, Maine, Pharmacy Assets, and those assets were divested on January 16, 1997, and March 10, 1997, respectively. Although his term was extended, the trustee failed to find an acquirer for the Bucksport, Maine, assets ("Bucksport Assets ) before his term expired on September 12, 1997. In its Petition, Rite Aid describes its and the trustee s efforts to divest and asserts, with supporting affidavits, that despite these efforts, an acquirer for the Bucksport Assets has not been found. The trustee believes that the value of the Bucksport Assets now is reduced to such an extent that "it is unlikely that any prudent businessperson that is capable of operating a pharmacy as a viable competitor in the local market place would purchase either Rite Aid store in Bucksport ,,5 Rite Aid also asserts that the prior approval provisionMaine. . . . of the order should be eliminated in light of the availability of the premerger notification and waiting period requirements of the HSR Act and "because there is nothing in the record to suggest that Rite 2 118rrc 1206(1994).

3 Ordcrl II.

4 Rite Aid subscq ucntly paid civil penalties of $900,000 to settle the Commssion s allegations that it failed to divest and to comply with other provisions of the order. S Affidavit of R. Steven Thing at 3.

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:\odifying Order 125 F.T.C. Aid would engage in the same acquisition as alleged in the complaint Section 5(b) of the FTC Act, 15 U. e. 45(b), provides that the Commission shall reopen an order to consider whether it should be modified if the respondent "makes a satisfactory showing that changed conditions oflaw or fact" so require. A satisfactory showing sufficient to require reopening is made 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. S. Rep. No. 96-500, 96th Cong. , 2d Sess. 9 (1979) (significant changes or changes causing unfair disadvantage); Louisiana-Pacific Corp. Docket No. C-2956, Letter to John e. Hart (June 5 , 1986) at 4 (unpublished) ("Hart Letter Section 5(b) also provides that the Commssion may modify an order when, although changed circumstances would not require reopening, the Commssion determines that the public interest so requires. Respondents are therefore invited in petitions to reopen to show how the public interest warrants the requested modification. Hart Letter at 5. ; 16 e.P.R. 2.5 J. In such a case, the respondent must demonstrate as a threshold matter some affirmative need to modify the order. 8 For example, it may be in the public interest to modify an order "to relieve any impediment to effective competition that may result from the order. Damon Corp. 101 FTC 689 692 (1983). Once such a showing of need is made, the Commssion will balance the reasons favoring thc requested modification against any reasons not to make the modification. Damon Letter at 2. The Commission also will consider whether the particular modification sought is appropriate to remedy thc identified harm. Id. at 4. The language of Section 5(b) plainly anticipates that the burden is on the petitioner to make a "satisfactory showing" of changed conditions to obtain reopening of the order. The Jegislative history also makes it clear that the petitioner has the burden of showing, other than by conclusory statements, why an order should be modified. The Commssion "may properly decline to reopen an order if a request is merely conclusory or otherwise fails to set forth 6 Petition at 12.

See also United Slates 1'. Louisiana-Pacific Corp. 967 F. 2d 1372 , 1376-77 (9th Cir. 1992) ("A decision to reopen does not necessarily entail a decision Lo modify the order. Reopening may occur even where the petition itself docs not plead facts requiring modification. " 8 Letter to Joel E. Hoffman. Damon Corp. , C-2916l1979- 1983 Transfer Binder) Trade Reg. Rep. (CCI-) 9! 22 207 at 22 585 (March 29, 1983)("Damon Letter RITE AID CORPORATION 849 846 Modifying Order specific facts demonstrating in detail the nature of the changed conditions and the reasons why these conditions require the requested modification of the order. " S. Rep. No. 96-500, 96th Cong. , 1st Sess. 10 (1979); see also Rule 2.51(b) (requiring affidavits in support of petitions to reopen and modify). If the Commssion determines that the petitioner has made the required showing, the Commssion must reopen the order to consider whether modification is required and, if , the nature and extent of the modification. The Commssion is not required to reopen the order, however, if the petitioner fails to meet its burden of making the satisfactory showing required by the statute. The petitioner s burden is not a light one given the public interest in repose and the finality of Commssion orders. After Rite Aid failed to divest as required by the order, the trustee made every effort to divest the Bucksport Assets. Immediately after his appointment, he pursued inquiries made by three parties who expressed an initial interest in the Bucksport Assets. One even submitted a contract, but uhimateJy withdrew it after performing a more detailed evaluation. The trustee now asserts that no prudent businessperson would acquire the Bucksport Assets. Although the fact that the passage of time has reduced the value of the asscts was foresecable and thus does not constitute the change in fact necessary to compel reopening the order, it would be futile to continue to require Rite Aid to divest and inequitable to require it to keep paying a trustee to attempt the same. Accordingly, Rite Aid has demonstrated an affirmative need to reopen the order. Having demonstrated an affirmative need to reopen the order Rite Aid must also demonstrate that the reasons to set aside the divestiture requirements outweigh the need to continue to impose those obligations on it. The purpose of this particular divestiture was to increase competition in Bucksport, Maine. An acquirer could not be found, however, and the evidence indicates that the value of the Bucksport Assets is now so reduced that such an acquirer will not be found, regardless of additional effort. The diligent attempts of the trustee to market the Bucksport Assets demonstrate that further attempts to divest, even at no minimum price, are Jikely to be fruitlesslO The continued costs imposed by this provision now See Federated Departmenf Stores, fllc. Ii. Moilie, 425 U.S. 394 (1981) (strong public interest considermions support repose and finality). 10 The respondents made the same showing in Prornodes, S. , Docket No. 9228, in which the trustee accomplished divestiture of only some of the supermarkets to be divested, Order Granling Request to Reopen and Modify, 117 FfC 37 (1994), and in CoopcrIndustrjes, Inc., Docket No, 3469 in which the trustee failed to tlnd an acquirer of the Jicense and assets to be divested, Order Reopening and Modifying Order (December 15, 1997).

Modifying Order 125 F. outweigh any benefit to be gained from continuing to compel a divestiture that almost certainly cannot be achieved, and, accordingly, this divestiture obligation of the order should be set aside. In its Petition, Rite Aid also asks the Commission to vacate the prior approval provisions of paragraphs IV, which prohibits Rite Aid for ten years, from making any acquisition of interests in or assets of specified entities without the prior approval of the Commission. Rite Aid contends that the prior approval is unwarranted "because there is nothing in the record to suggest that Rite Aid would engage in the same acquisition as alleged in the complaint. . . . "11 The Commission, in its Prior Approval Policy Statement concluded that a general policy of requiring prior approval is no longer needed " citing the availability of the premerger notification and waiting period requirements of the HSR Act to protect the public interest in effective merger law enforcement. Prior Approval Policy Statement at 2. The Commssion announced that it wi1 "henceforth rely on the HSR process as its principal means of learning about and reviewing mergers by companies as to which the Commssion had previously found a reason to believe that the companies had engaged or attempted to engage in an illegal merger. " As a general matter Commission orders in such cases will not include prior approval or prior notification requirements. Id.

The Commission stated that it will continue to fashion remedies as needed in the public interest, including ordering narrow prior approval or prior notification requirements in certain limited circumstances. The Commission said in its Prior Approval Policy Statement that " a narrow prior approval provision may be used where there is a credible risk that a company that engaged or attempted to engage in an anticompetitive merger would, but for the provision attempt the same or approximately the same merger. " The Commission also said that "a narrow prior notification provision may be used where there is a credible risk that a company that engaged or attempted to engage in an anticompetitive merger would, but for an order, engage in an otherwise unreportable anticompetitive merger. Id. at 3. As explained in the Prior Approval Policy Statement, the need for a prior notification requirement will depend on circumstances such as the structural characteristics of the relevant markets the size and other characteristics of the market participants, and other relevant factors.

The Commssion also announced, in its Prior Approval Policy Statement, its intention "to initiate a process for reviewing the retention or modification of these existing requirements " and invited 11 Petition at 12 , RITE AID CORPORATION 851 846 Modifying Order respondents subject to such requirements "to submit a request to reopen the order. Id. at 4. The Commssion determined that when a petition is filed to reopen and modify an order pursuant to . . . (the Prior Approval Policy Statement), the Commission wi1 apply a rebuttable presumption that the public interest requires reopening of the order and modification of the prior approval requirement consistent with the policy announced" in the Statement. Id. The presumption is that setting aside the prior approval requirement of paragraph IV is in the public interest. The record contains no evidence suggesting that this matter presents the limited circumstances identified in the Prior Approval Policy Statement as appropriate for retaining a narrow prior approval provision, e., credible risk that, but for the prior approval provision, the respondent would attempt the same or approximately the same merger. Prior notification, however, is appropriate for acquisitions in the markets specified because there is a credible risk that Rite Aid could engage in future anticompetitive acquisitions that would not be subject to the premerger notification and waiting period requirements of the HSR Act. Although the acquisition leading to the order exceeded the HSR Act threshold, the relevant markets subject to the order are Jocal, and the acquisition of an interest in or the assets of any concern that engaged in the business of selling prescription drugs at retail stores within the six months preceding such acquisition could fail below the size-of-transaction threshold in the HSR Act. Accordingly, It is ordered That this matter be, and it hereby is reopened; and It is further ordered That the order be, and it hereby is, modified to eliminate thc divestiture rcquirement of paragraph II as to the Bucksport Assets, as of the effective date of this order; and It is further ordered That paragraph IV of the order be, and it hereby is, modified, as of the effective date of this order, to read as follows:

It is further ordered That, for ten (10) years from the date this order becomes final, respondent shall not, without prior notification to the Commission, directly or indirectly, through subsidiaries partnerships, or otherwise: (A) Acquire any stock, share capital equity, leasehold or other interest in any concern, corporate or non-corporate, where such concern within the six months preceding such acquisition engaged in thc business of sellng 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, within six months of the offer to acquire, for (and stil suitable for use for) the business of selling prescription drugs at retail stores located in any ofthe cities Modifying Order 125 F. or towns listed in paragraph I.(J) of this order. Provided, however that these prohibitions shall not relate to the construction of new facilities.

The prior notification required by this paragraph IV shall be given on the Notification and Report Form set forth in the Appendix to Part 803 of Title 16 of the Code of Federal Regulations, as amended (hereinafter referred to as "the Notification "), and shall be prepared and transmitted in accordance with the requirements of that part except that no filing fee wil be required for any such notification notification shall be fied with the Secretary of the Commssion notification need not be made to the United States Department of Justice, and notification is required only of respondent and not of any other party to the transaction. Respondent shall provide the Notification to the Commssion at least thirty (30) days prior to consummating any such transaction (hereinafter referred to as the first waiting period"). If, within the first waiting period representatives of the Commission make a written request for additional information, respondent shall not consummate the transaction until twenty (20) days after substantially complying with such request for additional information. Early tennnation of the waiting periods in this paragraph may be requested and, where appropriate, granted by letter from the Bureau of Competition. Notwithstanding, prior notification shall not be required by this paragraph for a transaction for which notification is required to be made, and has been made, pursuant to Section 7 A of the Clayton Act 15 USe. J 8a.

STONE CONTAINER CORPORATION 853 853 Complaint