Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: FTC finds divestitures resolve anticompetitive effects of Dollar Tree, Family Dollar merger, (Jul 14, 2015)

By Linda O’Brien, J.D., LL.M.

In Dollar Tree, Inc.’s proposed $9.2 billion acquisition of competitor Family Dollar Stores, Inc., divestitures proposed in a recent settlement agreement will preserve competition in the markets adversely affected by the acquisition and are therefore in the public interest, according to an FTC statement released today.

On July 2, the FTC announced that Dollar Tree and Family Dollar Stores agreed to sell 330 Family Dollar stores to a private equity firm to settle charges that Dollar Tree’s proposed acquisition would likely be anticompetitive.

According to the FTC’s complaint (In re Matter of Dollar Tree, Inc., File No. 141-0207), Dollar Tree and Family Dollar sell deeply discounted general merchandise items—including food, home products, apparel and accessories, and seasonal items—at prices below $10 (in the case of stores under the “Dollar Tree” banner, all items are priced at $1.00 or less). Their stores compete directly in terms of price, product assortment, and quality, as well as location and customer service in local markets nationwide. The FTC identified 330 stores in local markets from 35 states where competition would be lost if the acquisition went forward as proposed.

The proposed settlement requires the divestitures to Sycamore Partners to be completed within 150 days following the acquisition. The settlement includes an Order to Maintain Assets, to help ensure that Family Dollar maintains the 330 stores until they are divested. The proposed settlement also appoints a monitor to oversee the merging parties’ compliance with their obligations under the settlement agreement.

To evaluate the likely competitive effects of this transaction and identify the local markets where it may likely harm competition, the Commission considered multiple sources of quantitative and qualitative evidence, according to the FTC statement. Such evidence included the geographic proximity of the merging parties’ stores relative to each other and to other retail stores, ordinary course of business documents and data supplied by Dollar Tree and Family Dollar, information from other market participants, and analyses conducted by various state attorneys general who were also investigating the transaction.

One component of the investigation involved a Gross Upward Pricing Pressure Index (GUPPI) analysis. As described in the 2010 Horizontal Merger Guidelines, this mode of analysis can serve as a useful indicator of whether a merger involving differentiated products is likely to result in unilateral anticompetitive effects. A GUPPI analysis served as a useful initial screen to flag those markets where the transaction might likely harm competition and those where it might pose little or no risk to competition. After considering all of the evidence, the FTC identified specific local markets where the acquisition would be likely to harm competition and arrived at the list of 330 stores slated for divestiture.

Dissent.Dissenting in part with the Commission’s acceptance of the proposed consent order, Commissioner Joshua Wright disagreed with the Commission’s conclusion that, in 27 markets, the proposed acquisition likely violates the Clayton Act. In those markets, the GUPPI was below 5 percent, indicating insignificant upward pricing pressure even before efficiencies or entry are taken into account, and weak incentives for unilateral price increases, he observed. The available quantitative and qualitative evidence were insufficient to support a reason to believe the proposed transaction would harm competition in these markets, in Wright’s view.

Additionally, Wright noted that the FTC should adopt a safe harbor in unilateral effects merger investigations by defining a GUPPI threshold below which it is presumed that competitive harm is unlikely, since the Merger Guidelines contemplate such a safe harbor. The Department of Justice Antitrust Division, consistent with this interpretation of the Merger Guidelines, publicly announced such a GUPPI safe harbor. Failure to adopt a safe harbor could raise concerns about the potential for divergence between Commission and Antitrust Division policy in unilateral effects merger investigations, Wright stated.

Companies: Dollar Tree, Inc.; Family Dollar Store, Inc.; Sycamore Partners

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