The Federal Trade Commission said today that J.C. Penney Company, Inc., the parent company of Thrift Drug, Inc., has agreed to divest a total of 161 drug stores in North and South Carolina by March 1997 to maintain a level of competition that otherwise would have been injured as a result of Penney’s acquisitions of Eckerd Corporation and 190 Rite Aid stores in these two states. Penney has agreed to complete the divestitures under a settlement with the FTC to resolve charges that the acquisitions would violate federal antitrust laws by allowing the firm to raise prices for pharmacy services to health insurance companies and other third-party payors. The settlement also contains a provision that would bar Penney from even acquiring the 127 Rite Aid stores in North Carolina and Charleston, South Carolina, until it has an agreement in place, approved by the Commission, to divest these stores.
George S. Cary, Deputy Director of the FTC’s Bureau of Competition, said evidence gathered in this investigation confirmed information found in earlier investigations in this industry. "When a single firm controls a large percentage of the chain pharmacy locations in a state or its major metropolitan areas," Cary said, "it is able to extract higher prescription drug prices, either alone or in conjunction with other major chains, from third-party payors. This drives up those payors’ cost and in turn raises insurance premiums for consumers.”
J.C. Penney is based in Plano, Texas, and through its wholly-owned Pittsburgh-based subsidiary Thrift Drug, owns 1,089 drug stores in 17 states. In the deals at issue, Penney plans to acquire Eckerd, a Largo, Florida-based firm with 1,724 drug stores in 13 states including North and South Carolina, as well as the 190 Rite Aid drug stores in these two states. Each of these firms has been involved in industry consolidation in recent years: since 1995, Thrift has acquired both the Kerr Drug, Inc. and Fay’s, Inc. drug store chains; Eckerd acquired the Rite Aid stores in Florida last year; and Rite Aid, in the face of FTC opposition, abandoned its plan to acquire Revco D.S., Inc. earlier this year, but now is planning to acquire the Thrifty/Payless chain.
According to the FTC, the acquisitions will give Penney a dominant position in the state of North Carolina and its three major metropolitan areas -- Charlotte, Greensboro, and Raleigh- Durham -- as well as in Charleston, South Carolina, which is the second largest metropolitan area in that state. As a result, Penney would have the ability to increase prices for the retail sale of pharmacy services to third-party payors. The FTC also alleged that new entry by other firms is not likely to be timely enough or on a scale necessary to offset these anticompetitive effects.
The proposed consent agreement to settle these charges would require Penney to divest by March 21, 1997, the following:
If Penney ultimately does not acquire the Rite Aid stores in North and South Carolina, the deadline for divesting the 34 Thrift drug stores in Charlotte and Raleigh-Durham would be extended by one month. All of the stores that Penney ultimately sells will have to be divested to a single pharmacy chain to ensure the buyer enough size and coverage to serve as an alternative anchor pharmacy chain for a prescription benefit management firm’s retail pharmacy network.
If the divestitures are not completed on time, the proposed order would allow the Commission to appoint a trustee to divest not only the above-listed 161 stores, but also the other 63 Rite Aid stores in South Carolina that Penney would acquire in the deal with Rite Aid. The proposed order also contains provisions that would require Penney to maintain the marketability and viability of the stores to be divested pending completion of the sales.
Finally, the proposed settlement contains various reporting and record keeping provisions that would assist the FTC in monitoring compliance.
The Attorney Generals’ offices in both North Carolina and South Carolina assisted the FTC in its investigation of this matter.
The Commission vote to announce the proposed consent agreement for public comment was 5-0. A notice summarizing the agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will determine whether to make it final.
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 $11,000.
Copies of the complaint, proposed consent agreement and an analysis of the agreement to assist the public in commenting are available on the FTC’s web site at http://www.ftc.gov, and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. Proposed consent agreements also are available by calling 202-326-2637. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File Nos: Eckerd -- 971-0016; Rite Aid -- 971-0017)