Monday, June 04, 2007

Drug Store Chains Agree to Divest 23 Stores to Ensure $3.5 Billion Acquisition

In order to clear the way for Rite Aid Corporation’s proposed $3.5 billion acquisition of the Brooks and Eckerd pharmacies from Canada’s Jean Coutu Group (PJC), Rite Aid and PJC entered a consent agreement and order with the Federal Trade Commission, requiring the sale of 23 pharmacies to Commission-approved purchasers.

The stores will be sold to Kenney Drugs; Medicine Shoppe International, Inc.; Walgreen Co.; Big Y; and Weis Markets.

“The consent order with the Commission requires the companies to sell pharmacies where competition would be adversely affected by the proposed transaction,” said Jeffrey Schmidt, Director of the FTC Bureau of Competition. “Its strong terms will ensure that consumers continue to have a choice in where they shop for prescription drugs.”

The June 1 FTC complaint alleged that the proposed acquisition would be anticompetitive and would violate Section 5 of the FTC Act and Section 7 of the Clayton Act in the relevant product market (retail sale of pharmacy services to cash customers in local markets).

Highly Concentrated Markets

In all 23 local markets identified in the FTC complaint, Rite Aid and Eckerd/Brooks are two of a small number of pharmacies offering cash services and at least half of the pharmacies in those markets. Customers in these markets viewed Rite Aid and Eckerd/Brooks pharmacies as their first and second choices based on location, service, and convenience, the complaint alleged.

Absent the divestitures required by the consent order, the proposed acquisition would allow Rite Aid to unilaterally exercise market power, according to the complaint. Such market power would raise the likelihood that prices paid by cash customers for pharmacy services would increase and the quality and selection of services would decrease, the Commission charged.

The Commission‘s analysis to aid public comment on the consent agreement and order contains detailed information on each of the approved purchasers and their ability to maintain competition in the relevant markets after the divestiture. A list of specific pharmacies being divested appears in Schedule A, attached to the consent order.

Divestitures Subject to Approval

All divestitures are subject to approval by the Commission. If the Commission determines during or after the public comment period that the buyers are not acceptable, any divestitures would have to be rescinded and other Commission-approved purchasers would have to be found.

The FTC approved the consent agreement and order by a 5-0 vote. The order is subject to public comment for 30 days. Comments should be sent to Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

The complaint is In the Matter of Rite Aid Corp. and The Jean Coutu Group (PJC), Inc., Docket No. C-4191, June 1, 2007. The news release, decision, and order appear here on the FTC web site.

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