Nester Mendez-Gomez, Esq.
Pietrantoni Mendez & Alvarez LLP
Popular Center Suite 1901
209 Munoz Rivera Avenue
San Juan, Puerto Rico 00918

Dear Mr. Mendez:

Thank you for your comment on behalf of Cooperativa de Consumidores Del Noroeste, Inc., Alma Rivera, Supermercados Conchita Hato Rey, Inc., Plaza Lomza Inc., Mayaguez & Quebradillas Food Warehouse, Inc., Luis Nuque, Inc., Supermercado Morales, Inc., Riago, Inc., Pablo Quiqones, Ralph's Food Warehouse Inc., Edwin Ortiz, Inc., Manuel Rosa e Hijo, Inc., Supermercados Plaza Guayama Inc., A. Cordero Badillo, Inc., and Pueblo International LLC 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. ("Maximo"). The Commission believes that the required divestiture eliminates the anticompetitive effects that otherwise would have resulted from the acquisition.

In your comment, you express two primary concerns. You maintain that Wal-Mart's divestiture in the three markets outlined above would not prevent the combined entity's post-acquisition exercise of market power, and request that divestitures be made in other areas of the island. You also allege that the proposed purchaser of the divested stores, Maximo, is, at the very least, an unproven entity, and not a suitable buyer of these properties. We are placing our responses to your comment, as well as to all other public comments, on our website to provide further insight into our investigative process.

Competitive Analysis

You begin by questioning why the Commission limited its divestiture to the Cayey, Ponce, and Manati markets.⁽¹⁾ 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.⁽²⁾ 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 why no divestitures were required in the city of Bayamon, which is part of the San Juan metropolitan area. The Commission found that Bayamon did not constitute a relevant antitrust market and that the merger would not significantly lessen competition in the smallest possible relevant geographic market that includes Bayamon 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. As a result, there is no basis for concluding that the Wal-Mart/Amigo transaction would be likely to cause anticompetitive problems in either the city of Bayamon or any part of the San Juan metropolitan area.⁽³⁾

You also raise the possibility of a "Humacao" market, in which a SAM's Club in the city of Humacao and an Amigo in the city of Juncos would be included. The Commission determined that this does not constitute a relevant geographic market for a number of reasons, including the distance (in time and miles) between Humacao and Juncos. Also, if one were to include both of these cities in the same market, other cities such as Caguas, in which there is extensive supermarket competition, would necessarily have to be included.⁽⁴⁾ Accordingly, in such an expanded market, there is no basis for concluding that Wal-Mart's acquisition of Amigo would be likely to cause anticompetitive problems.⁽⁵⁾

Buyer and Divestiture Approval

Your comment also expresses dissatisfaction with the Commission's approval of Maximo as the purchaser of the divested Amigo assets. Viability of the purchaser of divested assets is always of paramount concern to the Commission. As is customary, in this investigation the Commission's experienced staff carefully reviewed and assessed the background, capital resources, commercial relationships, business plan, and other relevant information relating to Maximo to determine that it has the capacity and incentive to operate the divested stores in a manner that will maintain competition in the relevant markets. Indeed, as a new entrant being established by some of the very people responsible for the founding and growth of the Amigo chain, Maximo may be expected to enhance competition not only in the divestiture markets, but in other markets to which it may expand in future years. We understand that you would have preferred that the Analysis include more information to enable you to assess independently Maximo's viability. Our ability to disclose confidential business information, including much of what you seek, is constrained by statute. In addition, we are constrained by our wish to ensure the effectiveness of the divestiture remedy itself. For example, even if we could divulge Maximo's business resources and plans, any such disclosure could well be used by Maximo's competitors to impair that company's competitive viability. Thus, we have sought to provide to the public as much information as is permissible and practicable without harming the very remedy on which we, and the public, depend.

While there are a number of erroneous statements about Maximo in your comment, most of them relate to information that is irrelevant to this investigation. We do, however, briefly address three inaccuracies here. First, you suggest that there was something untoward about Wal-Mart's payment to the landlords of the divested stores. The Commission customarily ensures there are no entanglements between the seller and purchaser of divested entities and for this reason required that Wal-Mart/Amigo be completely removed from the leases of the divested Amigo stores. There is nothing surprising or untoward about a landlord requiring compensation for agreeing to surrender potential rights of recourse against a former lessee assigning a lease, and that this occurred here is irrelevant to Maximo's competitive viability. Second, the Commission does not utilize "fairness opinions" or certificates of "arm's-length negotiations" to evaluate the price paid for divested stores or the adequacy of divestitures in merger investigations. Such opinions and certificates are neither relevant nor helpful. The Commission's sole concern is whether the purchase price would impair the competitive viability of the buyer. Third, you mention that the Commission suggested the names of various local competitors to Wal-Mart as potential buyers for the four stores, and that Wal-Mart failed to negotiate with these "viable" competitors. While staff often forwards to merging parties the names of potential buyers of divested properties, it does not pre-judge the financial viability of those entities and does not conduct auctions of the divested properties. The parties are free to propose any buyer, provided that competition will be adequately protected.

Conclusion

While we have attempted to address your concerns in this response, we observe that 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.

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. 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.

2. 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.

3. We are aware that, as you note, in the Commonwealth of Puerto Rico's suit against Wal-Mart (currently subject to a preliminary injunction entered on December 26, 2002, by the United States District Court in Puerto Rico, see Wal-Mart Stores v. Rodriguez, 2002 U.S. Dist. LEXIS 25228, Civ. No. 02-2778 (PG) (Dec. 26, 2002)), the Secretary of Justice alleged that Bayamon constitutes an additional relevant geographic market.

5. As you note, we received data from the economics firm Estudios Tecnicos, Inc. about various markets in Puerto Rico. We considered and weighed those data, along with extensive additional information, in reaching our conclusions.