Antitrust Law Blog

DOJ Obtains Consent Degree forcing Divestiture in Monsanto/Delta & Pine Land

On May 31, the Department of Justice Antitrust Division announced that it had reached a settlement with Monsanto, resolving the objections that the Division had with Monsanto's purchase of Delta & Pine Land ("Delta").  Numerous interest groups had watched the merger closely, as it involved the vertical integration of the largest producer of cotton seed traits (favorable growing characteristics that are introduced into cotton seeds via genetic engineering) with the largest producer of cottonseeds, and the horizontal integration of two cottonseed producers.

Although Monsanto had first attempted to merge with Delta in 1998, Monsanto had abandoned the merger, and the two companies had continued to operate independently.  Monsanto continued to partner with Delta in developing new varieties of cottonseeds, as Monsanto held a monopoly on the technology for developing new cotton traits, while Delta had a 50% share of the U.S. market for cottonseeds and an 85% share of the market in the Southeastern United States.  Delta, however, continued to work on new variants of cottonseed with Syngenta, DuPont, and Monsanto.  Monsanto also owned the Stoneville Pedigreed Seed Company ("Stoneville"), which also produced cottonseeds.

After Monsanto announced that it would purchase Delta for $1.5 billion, various interest groups and competitors, such as the National Black Farmer's Association and DuPont, expressed serious concerns, asserting that the acquisition could raise prices and reduce choices for traited cottonseeds and foreclose competition from other developers of cotton traits.  DuPont and Syngenta, having worked closely with Delta to develop the next generation of cottonseeds, worried that their investments would be lost and they would be foreclosed from the development of the next generation of cottonseeds.

In its settlement, the Antitrust Division sought to address the objections made against the acquisition.  First, the consent decree requires Monsanto to divest itself of Stoneville along with twenty lines of seed germplasm, to a buyer approved by the Division.  Second, to resolve the vertical issues, Monsanto must divest certain of the cottonseed lines developed by Delta to Syngenta, including the ones that incorporate Syngenta's insect resistant technology.  Finally, the consent decree requires Monsanto to make changes to its third party licenses, removing restrictions "on the ability of licensees to develop, market, or sell cottonseed containing traits of companies other than Monsanto."

The settlement is noteworthy for a number of reasons.  For one thing, many commentators thought that the Division should challenge the merger on the basis of the vertical issues posed by combining the largest cotton trait developer and the largest producer of cottonseeds.  Also, the agreement may assuage the asserted vertical concerns by permitting other cottonseed companies currently doing business with Monsanto to partner with other trait developers.  Thus, the Division imposed conditions beyond simple divestiture.

FTC Requires Divestitures in Rite Aid's Purchase of Eckerd and Brooks

On June 4, the FTC announced that it had reached a settlement with Rite Aid to resolve the antitrust issues arising from the purchase of Eckerd and Brooks.  The consent decree requires Rite Aid to divest 23 drug stores in eight New England and Mid-Atlantic states to other drug store chains.

On August 23, Rite Aid announced the purchase of The Jean Coutu Group USA in exchange $3.5 billion in the form of cash and a 30% ownership interest in Rite Aid.  The Jean Coutu Group owned and operated 1,858 Eckerd and Brooks pharmacies in the United States, while Rite Aid owned 3,319 drug stores.  The FTC, after issuing a second request and coordinating its investigations with state authorities, issued a complaint and proposed consent decree.

The consent decree and analysis defined the relevant market as "the retail sale of pharmacy services to cash customers in local markets."  The FTC specifically differentiated cash customers from customers covered by insurance, finding that cash customers generally could not obtain prescription insurance coverage in response to an increase in price, and that discount cards and internet prescription sales were not an adequate check on prices either.  In addition, the Commission stated that the profit margins on cash customers were generally much higher than they were on customers covered by insurance.  Despite the higher profit margins, the "vast majority" of a pharmacy's profits came from other sources, meaning that an increase in price charged to cash customers probably would not spur entry by a competing pharmacy, according to the Commission.  It found that further inhibiting entry was the small size of many of the towns, the zoning restrictions on building a new pharmacy, and the limited availability of new pharmacists.  In each of the twenty-three markets that the FTC defined, the merged firm would have had between approximately 50% and 100% of the market for pharmaceutical sales to cash customers.  To resolve the issues in the 23 markets, the FTC required Rite Aid to divest three of the stores to Kinney Drug Incorporated, one store to Big Y Foods, Incorporated, one store to Weis Markets Incorporated, six stores to Walgreen Company, and twelve to Medicine Shoppe International Incorporated.

Although the analysis given by the FTC indicates that each of the up-front buyers is "competitively and financially viable," Weis, Kinney, and Big Y are fairly small, with Weis operating 150 supermarkets, only some of which are pharmacies; Kinney operating 80 pharmacies; and Big Y operating 50 pharmacies.  CVS, the largest pharmacy in the United States, is absent from the list of buyers.