FTC Challenges A&Ps Proposed Acquisition of Pathmark Supermarkets

The Federal Trade Commission today announced a complaint challenging The Great Atlantic & Pacific Tea Company, Inc.’s (A&P) proposed $1.3 billion acquisition of Pathmark Stores, Inc. The complaint charges that the proposed acquisition would result in reduced competition between the two supermarket firms in Staten Island, New York and Shirley, Long Island, New York. Under the terms of a consent order settling the Commission’s charges, the companies must sell four of A&P’s Waldbaum’s supermarkets and one Pathmark supermarket in Staten Island, as well as one Waldbaum’s supermarket in Shirley, Long Island, to Commission- approved buyers by January 10, 2008.

“A&P and Pathmark are supermarket competitors in the highly concentrated areas of Staten Island and Shirley, Long Island, New York,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “Absent the relief provided by the Commission’s consent order, consumers in these areas likely would face higher prices and lower levels of service when shopping for their weekly groceries.”

The Proposed Transaction

Under the terms of an agreement between the companies dated March 4, 2007, A&P will acquire all of the voting securities of Pathmark for approximately $1.3 billion, including the assumption of debt. A&P, a Maryland corporation based in Montvale, New Jersey, owns and operates about 316 supermarkets in Connecticut, Delaware, Maryland, New York, New Jersey, and the District of Columbia. It operates supermarkets under the A&P, A&P Super Foodmart, Food Basics, Food Emporium, Super Fresh, and Waldbaum’s banners. Pathmark, a Delaware corporation based in Carteret, New Jersey, owns and operates about 141 supermarkets in Delaware, New York, New Jersey, and Pennsylvania, all under the Pathmark banner.

The Commission’s Complaint

According to the FTC’s complaint, absent relief, A&P’s acquisition of Pathmark would violate Section 7 of the Clayton Act and Section 5 of the FTC Act, as amended, by lessening competition in the retail sale of grocery products from supermarkets. Specifically, the complaint alleges that the acquisition would eliminate competition between A&P and Pathmark in certain areas where both operate supermarkets. Supermarkets are stores that carry a wide selection and deep inventory of food and grocery products in a variety of brands and sizes, enabling consumers to buy substantially all of their food and other grocery shopping items in a single visit.

The complaint alleges that the acquisition would harm consumers in two areas: Staten Island, New York, and Shirley, Long Island, New York, both of which are highly concentrated markets. Specifically, the proposed acquisition may increase opportunities for all supermarkets in these geographic markets to engage in coordinated interaction or for A&P to exercise unilateral market power, leading to higher prices or lower levels of service. According to the complaint, entry would not be timely, likely, or sufficient to prevent these anticompetitive effects.

Terms of the Consent Order

The consent order approved by the Commission is designed to remedy the alleged anticompetitive effects of A&P’s acquisition of Pathmark. The order requires A&P to sell four Waldbaum’s supermarkets and one Pathmark supermarket in Staten Island, and a Waldbaum’s supermarket in Shirley, Long Island, together with their related assets. The address of each store can be found in the analysis to aid public comment for this matter, which is linked to this press release on the FTC’s Web site.

The Pathmark store and four Waldbaum’s stores in Staten Island will be divested to King Kullen Grocery Company, Inc., and the Waldbaum’s store in Shirley will be divested to The Stop & Shop Supermarket Company LLC, a subsidiary of the Dutch corporation Koninklijke Ahold NV. The order requires that the divestitures take place no later than January 10, 2008. If the divestitures are made during the public comment period under the order and the FTC finds that the required buyers are not acceptable, the companies must sell these assets to other buyers within three months of when the order becomes final, after receiving prior approval of the Commission.

The consent order also contains a separate order to maintain assets. Under its terms, the companies are required to maintain the viability of the six supermarkets to be divested pending their sale to ensure they are competitively viable when operated by the buyers. Further, the order prohibits A&P and Pathmark, for 10 years and without prior notice to the FTC, from owning or leasing interests in any property that has operated as a supermarket within the prior six months in either Staten Island or Shirley. The order also prohibits the companies, for 10 years, from entering into or enforcing any agreement that restricts the ability of anyone who acquires any interest in any location formerly used by A&P or Pathmark as a supermarket in Staten Island or Shirley to operate that location as a supermarket.

The Commission vote to approve the consent order was 5-0. The order will be subject to public comment for 30 days, until December 27, 2007, after which the FTC will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

The FTC would like to thank the states of New York, New Jersey, and Pennsylvania for their assistance in conducting the investigation into the proposed transaction and developing the resulting consent agreement. The New York State Attorney General anticipates entering into an agreement with the parties that mirrors the proposed consent order divestitures.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.