• On August 30, the Federal Trade Commission today issued a statement that explained its reason for closing the investigation of the $17 billion acquisition by Federated Department Stores, Inc. (“Federated”) of the May Department Stores Company (“May”) and allowing the deal to proceed. Federated owns or operates 456 department stores nationwide – under the Macy’s and Bloomingdale’s name – and May owns or operates 491 department stores throughout the United States under names including Marshall Field’s, Lord & Taylor, Filene’s and Kaufman’s, Hecht’s and Strawbridge, Foley’s, Famous Barr, and Robinson-May.

  The Commission – writing with Chairman Majoras recused – issued the statement in accordance with its policy to help provide transparency for decisions in high-visibility matters. According to the statement, the Commission “conducted an exhaustive six-month investigation” of the proposed transaction, because the combination of the two chains, each of which is the product of multiple earlier combinations, “will create by far the largest chain of so-called ‘traditional’ or ‘conventional’ department stores in the country.” In addition, the transaction will create high levels of concentration among conventional department stores in many parts of the country, and thus facially appeared to raise issues of competitive concerns. However, “When an industry is changing rapidly . . . it is necessary to take account of fundamental changes in the structure of the market.” The statement detailed the rapid evolution of retail markets in the United States to demonstrate that suburban shopping malls “have largely replaced downtown shopping destinations.”

  The Commission also examined evidence on pricing patterns, which it says “provides the most compelling, objective demonstration that . . . conventional department stores are not in a distinct market.” They face competition from multiple retail formats for the merchandise they sell. Accordingly, the statement stated, department stores must consider prices and selections at a wide range of other retailers when they make inventory and pricing decisions. Also, Federated and May, like other department store chains, set prices that are uniform over broad geographic areas – typically multi-state regions. This fact distinguishes this transaction from, for example, Staples proposed merger with Office Depot in 1997, where a narrow “office superstore” market definition was bolstered by proof of differential prices, depending on the number of superstores in a particular city.

  The statement also discussed how the Commission defined the geographic market in which to examine the proposed acquisition, and finds that the market “is at least as large as an MSA,” within which there are many alternatives to discipline prices. The Commission was aware, however, that many of the products now sold in department stores have non-price attributes that are also important to consumers. Accordingly, staff carefully reviewed the investigative record for any potential effects in non-price competition, such as reductions in merchandise assortment or new product introductions. None were found. Selected divestitures may take place following the transaction, but the FTC does not need to take action, in light of the broad relevant markets it found. In concluding its statement, the Commission said that, “. . .We recognize that many individual consumers mourn the gradual disappearance of individual department stores in their hometowns . . . These changes, however, have been ongoing for many years. We have not been able to uncover any evidence that this particular merger will have any adverse effect on consumers as a whole.”

• On August 26, the Commission approved an application for proposed divestiture from Cytec Industries, Inc., related to Cytec’s recent acquisition of the Surface Specialties Division of UCB S.A. Under the terms of a consent order with the FTC, Cytec was required to divest certain assets related to its purchase of UCB. Through its application, Cytec requested Commission approval to divest the UCB Amino Resins Business and the Fechenheim Additives Business, as those terms are defined in the order, to wholly owned subsidiaries of INEOS Group Limited and affiliates of INEOS Capital Limited. Through this action, the FTC has approved Cytec’s application.

• On August 23, the Commission approved the filing of two comments with the Federal Energy Regulatory Commission (“FERC”) concerning: 1) FERC’s initiatives to reduce entry impediments in wholesale electricity markets that may stem from long-term risk in obtaining transmission services, and 2) the need to standardize the way in which transmission owners calculate the amount of capacity available for unaffiliated users of the transmission grid.

  The first comment, approved on August 8, 2005, concerns long-term transmission rights in markets operated by regional transmission organizations (“RTOs”) and independent system operators (“ISOs”). According to the staff comment, wholesale electricity customers and their generation suppliers currently face substantial risk in the acquisition of long-term transmission access in markets operated by FERC-approved RTOs and ISOs. The risks relate both to the price and availability of long-term transmission. The staff comment provided three insights and suggestions on why FERC’s initiatives to address long-term transmission risks are important. First, the staff comment states that FERC could make efficient generation entry more probable by reducing long-term transmission risk. Next, reduction of this long-term transmission risk is even more important in areas outside of those operated by RTOs or ISOs because of the risk of transmission discrimination. Finally, the comment suggests that FERC coordinate its policies to reduce transmission risk with its policies to promote efficient transmission investment projects, including those whose primary benefits are in the form of enhanced reliability of the transmission system.

  In the second comment, approved on August 22, 2005, the FTC states that standardization of the way in which transmission owners calculate the amount of available capacity may help prevent transmission discrimination within the electricity industry and ensure the reliability and security of the transmission grid. Specifically, the comment states that updating behavioral rules against undue transmission discrimination are likely to be helpful in the short-term while the FERC continues to implement structural remedies to remove the ability and incentive for transmission owners to engage in such conduct. The staff urges the FERC not to relax its efforts to implement RTOs and Transcos – independent, for-profit transmission companies – while improving its open access regulations. Further, transmission reliability and security concerns also may warrant updates of these regulations.

• On August 19, the Commission approved an application for proposed divestiture by Cemex, S.A. de C.V. (“Cemex”) related to its recent acquisition of RMC Group PLC (“RMC”). Under the terms of the consent order allowing the acquisition, Cemex was required to divest RMC’s ready-mix concrete assets in the Tucson, Arizona, area to a Commission-approved buyer within six months of signing the order. Through this action, the Commission has approved Cemex’s divestiture of these assets to California Portland Cement Company. The Commission vote approving the divestiture was 4-0.

• On August 16, the Commission, with the concurrence of the Acting U.S. Assistant Attorney General for Antitrust, authorized the release of the Twenty-Seventh Annual Report to Congress Regarding the Hart-Scott-Rodino (“HSR”) Premerger Notification Program. The report summarizes Commission and Department of Justice (“DOJ”) actions conducted under the HSR Act in fiscal year 2004, noting that 1,454 premerger filings were received – 43 percent more than the 1,014 filings received in fiscal year 2003. The report also describes the HSR Act and provides a historical overview of how the federal antitrust agencies have implemented the Act since its enactment in the late 1970s. The report presents FY 2004 developments relating to compliance with the Premerger Notification Rules and Procedures, followed by a discussion of both FTC and DOJ merger enforcement activities during the year. Finally, the report includes a summary of the ongoing reassessment of the effects of the Premerger Notification Program. Appendices provide a summary of transactions for fiscal years 1995-2004 and the number of transactions reported as filings by month during this time. A statistical table presents data profiling HSR filings and enforcement interest during FY 2004. The Commission vote to issue the report, which is available on the FTC’s Web site as a link to this press release, was 4-0.

• On August 9, the Commission has approved the publication of a Federal Register notice concerning proposed amendments to the Hart-Scott-Rodino (HSR) Rules, 16 C.F.R. Part 803. As detailed in the notice, which will be published shortly and can be found on the FTC’s Web site as a link to this press release, the proposed amendments would allow parties filing pre-merger documents under the HSR Act to provide Internet links to certain documents in lieu of paper copies for items 4(a) and 4(b) on the notification and report form. The proposed rulemaking also addresses “stale filing” situations, in which parties make premerger filings but then fail to comply with a Request for Additional Information and Documentary Material – commonly known as a second request.

• On August 5, the Commission authorized the staff to file a joint amicus brief with the U.S. Department of Justice (“DOJ”) in the matter Illinois Tool Works Inc. v. Independent Ink, Inc., No. 04-1329 (U.S. S. Court). The brief urges the reversal of a Federal Circuit Court decision, which held that there is an exception for patented products from the requirement that an antitrust plaintiff challenging a tying arrangement under Section 1 of the Sherman Act prove that the defendant has market power in the tying product market. The Commission vote authorizing the staff of the Office of General Counsel to file the joint brief with the DOJ was 3-0, with Commissioner Jon Leibowitz not participating.

• On August 2, following a public comment period, the Commission approved the issuance of two consent orders. The first concerns Chevron Corp.’s acquisition of Unocal Corporation. The second relates to the settlement of the Commission’s administrative complaint against Unocal’s subsidiary, Union Oil Company of California, for engaging in alleged anticompetitive practices. The Commission vote approving each of the final consent orders was 3-0-1, with Chairman Deborah Platt Majoras recused.

Authored by:
Robert W. Doyle, Jr.
202-218-0030
rdoyle@sheppardmullin.com