Rite Aid Corporation has agreed to pay $900,000 in civil penalties for failing to divest three drug stores in Maine and New Hampshire as required by a 1994 order issued by the Federal Trade Commission. Rite Aid agreed to issuance of that order to resolve antitrust concerns arising out of Rite Aid's acquisition of LaVerdiere Enterprises, Inc. Rite Aid was to have divested the drug stores, located in Bucksport and Lincoln, Maine, and Berlin, New Hampshire, in order to create competition for consumers in those three towns. According to the FTC, each of these small towns is located at least an hour from the next closest pharmacy and in each town the acquisition would have combined the only chain pharmacies providing pharmaceuticals at retail.
"Competition keeps prices low and quality and service high," said William J. Baer, Director of the FTC's Bureau of Competition. "The FTC is serious when it requires divestiture and this payment by Rite Aid should send a message about the costs of failing to comply with our orders. This behavior also explains why the Commission now seeks to put stronger protections in its divestiture orders through greater use of upfront buyers and 'crown jewel provisions' and shorter divestiture periods."
Rite Aid, based in Camp Hill, Pennsylvania, operates the nation's largest chain of drug stores. According to the FTC's complaint issued in 1994, Rite Aid entered into an agreement to acquire all of LaVerdiere's stock for $50 million. The FTC alleged that there were very few competitors operating retail stores selling prescription drugs in the three cities at issue and therefore the merger would have led to higher prices for prescription drugs sold in retail stores in these areas.
Under the 1994 order entered to settle the FTC charges, Rite Aid was required to divest the pharmacy assets either in its own Rite Aid stores, or in the LaVerdiere's stores it acquired in the transaction, to an entity that would have operated them in competition with Rite Aid. The divestitures were to have been completed within 12 months. If not, the order permitted the FTC to appoint a trustee to divest the assets. Appointment of a trustee did not preclude the Commission from seeking civil penalties for the late divestitures.
According to the FTC's complaint for civil penalties, although Rite Aid agreed to the order to divest the stores, the company did virtually nothing to comply, and, as a result, consumers were denied the full benefits of competition intended by the 1994 order. The company also initially failed to file timely or complete reports every 60 days, as required by the order.
In February 1996, the FTC announced the appointment of a trustee, R. Steven Thing, to divest the pharmacy assets in Maine and New Hampshire after Rite Aid missed its deadline. The trustee found acquirers for the pharmacy assets in two of the areas. The Commission on January 2, 1997, approved the divestiture of the Berlin, New Hampshire, assets to Maxi Drugs and on January 29, 1997, approved the divestiture of the Lincoln, Maine, assets to Hannaford Bros. Co. The drugstores in Bucksport, Maine, continue to be operated by Rite Aid.
In order to settle the most recent FTC complaint, Rite Aid has agreed to pay $900,000 in civil penalties within 30 days of entry of the final judgment.
The Commission vote to accept the civil penalty settlement was 3-0, with Commissioners Mary L. Azcuenaga and Mozelle W. Thompson not participating. It was filed in U.S. District Court for the District of Columbia and is subject to court approval.
Copies of the new complaint and civil penalty settlement as well as the 1994 complaint, consent order and associated press releases are available from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http:www.ftc.gov (no period).
(FTC File No. C3546)
Office of Public Affairs
Bureau of Competition
Daniel P. Ducore
Bureau of Competition