The Scotts Company has agreed to settle Federal Trade Commission charges that its $200 million acquisition of Stern's Miracle-Gro Products, Inc. would substantially lessen competition and increase prices for water-soluble fertilizer used by U.S. consumers. Under the proposed settlement, Scotts will divest its Peters Consumer Water Soluble Fertilizer Business and related assets to Alljack & Company or another Commission-approved buyer by no later than Dec. 31, 1995.
Scotts' corporate offices are in Marysville, Ohio. Miracle-Gro, the leading marketer of consumer water-soluble fertilizer in the United States, is based in Port Washington, New York.
According to the FTC complaint detailing the charges, Scotts and Miracle-Gro jointly account for almost 80 percent of the U.S. market for consumer water-soluble fertilizer, used for houseplants, gardens, shrubs and flowers. The market for this fertilizer is highly concentrated, with relatively few com- petitors, and consumers are reluctant to purchase unknown brands because of uncertainty about how the products will perform, the FTC alleged. Thus, it would be difficult and time-consuming for another company to enter and build a brand reputation necessary to significantly impact competition in the market, the complaint states.
The merger would increase the likelihood of unilateral anticompetitive actions as well as of coordinated interaction among those remaining in the market, according to the complaint. It could result in higher prices and reduced or delayed innovation, the FTC alleged. The complaint specifically alleges that Miracle-Gro already exercises market power in the consumer water-soluble fertilizer market, that Miracle-Gro is the closest substitute for the Peters brand of consumer water-soluble fertilizer, and that consumers who purchase Scotts' Peters brand are more likely to switch to Miracle-Gro than to any other brand. The complaint also alleged that Scotts' marketing strategy for Peters anticipated more aggressive competition with Miracle-Gro, including technical improvements to the Peters product, a price reduction, and the production of television commercials directly comparing Peters to Miracle-Gro.
The proposed consent agreement to settle these charges would require Scotts to divest its Peters consumer water-soluble fertilizer business, including the exclusive right to the Peters brand name and associated marketing assets, to Alljack & Co. (based in Troy, Michigan), or to another Commission-approved buyer. To ensure that the buyer can operate the Peters business in competition with the Miracle-Gro products, the agreement also would require that, pending divestiture, Scotts maintain Peters as a viable entity and that it operate the Miracle-Gro consumer water-soluble fertilizer business independently of the Peters business. In addition, the agreement would prohibit Scotts from putting the Scotts brand name on new water-soluble fertilizer for consumer use for two years after the divestiture. The agreement would require that, if the Peters assets are divested to Alljack, the divestiture be completed no later than 10 days after the Commission's final approval of the settlement. Otherwise, the divestiture would have to be completed no later than Dec. 31, 1995. If the divestiture is not completed on time, the settlement would permit the Commission to appoint a trustee to complete it. If, after six months, the trustee did not succeed in divesting the Peters consumer water-soluble fertilizer business, then the trustee could divest the entire Peters business, including the Peters professional horticultural products business.
Finally, the settlement would require Scotts to obtain Commission approval before acquiring any consumer water-soluble fertilizer business in the United States for a 10-year period.
The Commission vote to approve the proposed consent for public comment was 5-0.
The proposed consent will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
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 $10,000.
Copies of the complaint, consent and an analysis of the agreement to assist the public in commenting are available from the FTC's Public Reference Branch, Room 130, at the above address.
(FTC File No. 951 0056)