Ronald A. Bloch, Esq.
Kalik Lewin
5247 Wisconsin Avenue NW, Suite 5
Washington, D.C. 20015

Dear Mr. Bloch:

Thank you for your comment regarding the Federal Trade Commission's proposed consent agreement relating to the acquisition of Supermercados Amigo, Inc. ("Amigo") by Wal-Mart Stores, Inc. ("Wal-Mart"). The Federal Trade Commission ("Commission") has concluded that there is reason to believe that Wal-Mart's acquisition of Amigo would violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act. The agreement requires Wal-Mart's divestiture of all of the acquired Amigo stores in three geographic markets, the areas of Puerto Rico in and near Cayey and Cidra (the "Cayey" market), Ponce and Juana Diaz (the "Ponce" market), and Barceloneta, Manati, and Vega Baja (the "Manati" market), to Supermercados Maximo, Inc. The Commission believes that the required divestiture eliminates the anticompetitive effects that otherwise would have resulted from the acquisition.

In your comment, you express a number of concerns. You emphasize the need for transparency in the merger investigation process, ask us to explain in more detail the basis on which the geographic markets were defined, and object that the consent order permits the divestiture to occur prior to the expiration of the public comment period.

Transparency

You begin by stressing the importance of transparency in the Commission's investigative process, a point with which we agree. The Commission strives to provide transparency with respect to information that can be made public and, as a reflection of those efforts, comments and responses regarding the instant transaction will be posted on the FTC's website. It is, however, important to note that while we have attempted to address your concerns in this response, Commission Rule 2.34(c), 16 C.F.R. § 2.34(c), provides that, when the Commission publishes a proposed consent agreement for public comment, it will provide "an explanation of the provisions of the order and the relief to be obtained thereby and any other information that it believes may help interested persons understand the order." The Analysis of the Complaint and Proposed Decision and Order to Aid Public Comment ("Analysis") in this matter satisfied these requirements. It explained the order provisions and the relief to be obtained and it published all other information that the Commission believed would help interested persons understand the order. The rule does not require that the Commission publish a synopsis of its investigation or a discussion of any or all approaches that were considered and rejected during the investigation.

The public comment period is for the Commission's benefit. The primary purpose of the public comment period and of the Analysis is to invite the submission of comments that will assist the Commission in assessing the proposed consent agreement. The question, therefore, is whether the Commission has enough information to make a correct decision. The information available to the Commission includes not only the public comments but also, of course, the factual information and analyses developed by the staff during the course of the investigation. The Commission is satisfied that the information received in response to the invitation for public comment, together with all of the other information available to the Commission, is adequate for it to evaluate the proposed agreement.

It is worth noting that the Commission has on occasion gone beyond the requirements of the rule and discussed matters that may be of interest to outside observers. The Commission is committed to transparency and in appropriate cases the Commission or individual Commissioners will explain to the extent possible why decisions were made. However, their willingness to provide this information in individual cases should not be taken as a commitment to do so in all cases.⁽¹⁾

Market Definition

You question why the Commission limited its divestiture to the Cayey, Ponce, and Manati markets in Puerto Rico.⁽²⁾ As it does in every investigation, the Commission considered market definition on an intensely factual, case-by-case basis, using its long-established approach and methodology for market definition in the context of supermarket mergers. The Commission staff defined relevant antitrust markets in which to assess the proposed acquisition only after a careful examination of business operations, consumer purchasing patterns, and other circumstances applicable to Puerto Rico. Unlike commentators who had to speculate on market definition, concentration, and other issues, the Commission compelled the parties to the acquisition and others to produce (on a confidential basis) commercially sensitive information to make its assessment of the proposed merger.⁽³⁾ Based on this and other information, the Commission has determined that the effect of the Wal-Mart/Amigo acquisition, if consummated, may be substantially to lessen competition in these three geographic markets and not in other areas. In each of the markets in which the acquisition would threaten competition, the Commission's consent order requires the divestiture of all of the acquired stores. Further, based on the information available to it, the Commission concluded that divesting additional stores was not necessary to ensure Maximo's competitive viability. Under these facts, requiring additional divestitures in markets not threatened by anticompetitive effects would be an improper exercise of the Commission's authority, and could deprive consumers of substantial benefits.

You specifically inquire as to why there were no divestitures required in the cities of San Juan, Bayamon, and Carolina, all of which are situated in the San Juan metropolitan area, and Caguas, which is immediately south of the San Juan area. The Commission found that the merger would not significantly lessen competition in any possible relevant geographic market in the San Juan metropolitan area because there would continue to be extensive competition post-acquisition. Moreover, in addition to the high number of competitors already present, the area is subject to substantial additional entry and expansion by competitors other than Wal-Mart and Amigo.⁽⁴⁾ As a result, there is no basis for concluding that the Wal-Mart/Amigo transaction would be likely to cause anticompetitive problems in any part of the San Juan metropolitan area.

Buyer and Divestiture Approval

Your comment raises concerns about the Commission's practice of permitting divestitures (and the underlying transactions) to close--with the Commission retaining the right to require rescission--before the public comment period expires. As you note, this is a long-standing policy of the Commission in supermarket mergers. In determining whether to allow a divestiture to occur prior to the expiration of the public comment period, the Commission balances at least two concerns. Allowing divestitures to occur quickly serves the public interest in restoring marketplace competition and in avoiding damage to the competitiveness of the stores to be divested. On the other hand, delaying divestitures until the public comment period expires might help avoid the consumer confusion and competitive harm that you suggest would result if the Commission concluded, based on the public comments, that the divestiture was inappropriate, and accordingly required rescission and re-divestiture to another buyer.

In the Commission's experience, it is particularly important to accomplish supermarket divestitures as swiftly as possible, because allowing stores that are to be divested to remain in the hands of the merging parties for any length of time can lead to sales declines, customer abandonment, and even store failure. It has also been the Commission's experience that the likelihood that additional information obtained during the public comment period will require rescission and re-divestiture is low, particularly given the extensive and often confidential information on which the Commission's experienced staff bases its recommendations. Accordingly, in balancing the relevant concerns, the Commission has consistently concluded that the injury that would result from delaying divestitures--both to competition in general, and to the competitiveness of the stores to be divested in particular--outweighs the benefits that might be provided by delay.

Conclusion

We appreciate your concerns and the time you took to comment in this matter. After careful consideration of your comment and other materials, the Commission has determined to accord final approval to the consent order in this matter, without modification. Please let us know whenever we can be of assistance.

By direction of the Commission, Commissioner Anthony recused.

Donald S. Clark
Secretary

1. We also appreciate your comment on the various statements in the cruise line matter. You should understand, however, that similarly comprehensive explanations are not always appropriate or possible. But where it is appropriate and possible the Commission will no doubt continue to elaborate on its decisions.

2. In a footnote, you express concern that these geographic markets contain a relatively small percentage of the island's population, but such measures are irrelevant for antitrust purposes.

3. In its investigation, Commission staff sought and considered information about the likely competitive effect of the proposed acquisition from numerous sources, including retailers and distributors of supermarket items. The information provided by these sources often was valuable; for example, such information played an important role in the Commission's conclusion that in Puerto Rico the relevant product market includes club stores in addition to supermarkets. In considering the submissions of incumbent firms, however, the Commission is careful to recognize that their interests do not necessarily correspond to those of consumers. Such firms often ignore or understate their ability to respond to competition, and treat pro-competitive efficiencies as threats.

4. Caguas may be considered part of an "extended" San Juan metropolitan area, and is also characterized by extensive supermarket competition. The evidence did not indicate that the merger would significantly lessen competition in the smallest possible relevant geographic market that includes Caguas.