UNITED
STATES OF AMERICA In the Matter of CVS CORPORATION, a corporation, File No. 971-0060 AGREEMENT CONTAINING CONSENT ORDER The Federal Trade Commission ("Commission"), having initiated an investigation of the proposed acquisition of Revco D.S., Inc. ("Revco") by CVS Corporation ("CVS"), and it now appearing that CVS and Revco, hereinafter sometimes referred to as "Proposed Respondents," are willing to enter into an agreement containing an Order ("Agreement") to divest certain assets and providing for other relief: IT IS HEREBY AGREED by and between Proposed Respondents, by their duly authorized officers and attorneys, and counsel for the Commission that: 1. Proposed Respondent CVS Corporation is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at One CVS Drive, Woonsocket, Rhode Island 02895. 2. Proposed Respondent Revco D.S., Inc. is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 1925 Enterprise Parkway, Twinsburg, Ohio 44087. 3. Proposed Respondents admit all the jurisdictional facts set forth in the draft of complaint here attached. 4. Proposed Respondents waive:
5. This Agreement shall not become part of the public record of the proceeding unless and until it is accepted by the Commission. If this Agreement is accepted by the Commission it, together with the draft of complaint contemplated thereby, will be placed on the public record for a period of sixty (60) days and information in respect thereto publicly released. The Commission thereafter may either withdraw its acceptance of this Agreement and so notify the Proposed Respondents, in which event it will take such action as it may consider appropriate, or issue and serve its complaint (in such form as the circumstances may require) and decision, in disposition of the proceeding. 6. This Agreement is for settlement purposes only and does not constitute an admission by Proposed Respondents that the law has been violated as alleged in the draft of complaint here attached, or that the facts as alleged in the draft complaint, other than jurisdictional facts, are true. 7. This Agreement contemplates that, if it is accepted by the Commission, and if such acceptance is not subsequently withdrawn by the Commission pursuant to the provisions of Section 2.34 of the Commission's Rules, the Commission may, without further notice to the Proposed Respondents, (1) issue its complaint corresponding in form and substance with the draft of complaint here attached and its decision containing the following Order to divest in disposition of the proceeding, and (2) make information public with respect thereto. When so entered, the Order shall have the same force and effect and may be altered, modified, or set aside in the same manner and within the same time provided by statute for other orders. The Order shall become final upon service. Delivery by the United States Postal Service of the complaint and decision containing the agreed-to Order to Proposed Respondents' addresses as stated in this Agreement shall constitute service. Proposed Respondents waive any right they may have to any other manner of service. The complaint may be used in construing the terms of the Order, and no agreement, understanding, representation, or interpretation not contained in the Order or the Agreement may be used to vary or contradict the terms of the Order. 8. Proposed Respondents have read the proposed complaint and Order contemplated hereby. Proposed Respondents understand that once the Order has been issued, they will be required to file one or more compliance reports showing that they have fully complied with the Order. Proposed Respondents further understand that they may be liable for civil penalties in the amount provided by law for each violation of the Order after it becomes final. 9. Proposed Respondents shall, within thirty (30) days of the date this Agreement is signed by Proposed Respondents, submit an initial report, pursuant to Section 2.33 of the Commission's Rules, signed by the Proposed Respondents, setting forth in detail the manner in which the Proposed Respondents are complying with the terms of the Asset Maintenance Agreement signed by the Proposed Respondents on May 21, 1997 attached to this Order and made a part hereof as Appendix I), and how they will comply with Paragraph II of the Order when and if entered. Such report will not become part of the public record unless and until the accompanying Agreement and Order are accepted by the Commission for public comment. ORDER I. IT IS ORDERED that, as used in this Order, the following definitions shall apply: A. "CVS" means CVS Corporation, its directors, officers, employees, agents and representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups, and affiliates controlled, directly or indirectly, by CVS, and the respective directors, officers, employees, agents and representatives, successors, and assigns of each. CVS, after consummation of the Acquisition, includes Revco. B. "Revco" means Revco D.S., Inc., its directors, officers, employees, agents and representatives, predecessors, successors, and assigns; its subsidiaries, divisions, groups, and affiliates controlled, directly or indirectly, by Revco, and the respective directors, officers, employees, agents and representatives, successors, and assigns of each. C. "Respondents" mean CVS and Revco. D. "Commission" means the Federal Trade Commission. E. "Acquisition" means CVS's proposed acquisition of all of the outstanding voting securities of and merger with Revco pursuant to the Agreement and Plan of Merger dated February 6, 1997. F. "J.C. Penney" means J.C. Penney Company, Inc., a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its principal place of business located at 6501 Legacy Drive, Plano, Texas 75024-3698. G. "Eckerd" means Eckerd Corporation, an affiliate of J.C. Penney. Eckerd is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its principal place of business located at 8333 Bryan Dairy Road, Largo, Florida 33777. H. "Medicine Shoppe" means Medicine Shoppe International, Inc., a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its executive offices located at 1100 North Lindbergh, St. Louis, Missouri 63132. I. "Pharmacy Operations" means Pharmacy Operations, Inc., a wholly owned subsidiary of Medicine Shoppe. Pharmacy Operations is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with offices located at 1100 North Lindbergh, St. Louis, Missouri 63132. J. "Acquirer(s)" means Eckerd, Medicine Shoppe or Pharmacy Operations, and/or the entity or entities approved by the Commission to acquire: the Virginia Assets to be Divested pursuant to Paragraph II.A.1. of this Order; the Revco Pharmacy Assets pursuant to Paragraph II.B.1. or the New York Assets to be Divested pursuant to Paragraph II.B.2. of this Order; the Revco Virginia Assets pursuant to Paragraph III.A. of this Order; or the CVS Binghamton Assets pursuant to Paragraph III.B. of this Order. K. "Landlord consents" means all consents from all landlords that are necessary to effect the complete transfer to the Acquirer(s) of the assets required to be divested pursuant to this Order. L. "MSA" means Metropolitan Statistical Area, which refers to geographic areas as defined by the United States Department of Commerce, Bureau of the Census. M. "Retail Drug Store" means a full-line retail store that carries a wide variety of prescription and nonprescription medicines and miscellaneous items, including, but not limited to, drugs, pharmaceuticals, patent medicines, sundries, tobacco products, and other merchandise. N. "Retail Drug Store Assets" means all assets constituting the Retail Drug Store business, excluding those assets pertaining to either the Revco or CVS trade name, trade dress, trade marks and service marks, and including, but not limited to:
O. "Revco Pharmacy Business" means Revco's business of selling pharmacy services including prescription drugs at any of the Retail Drug Stores listed in Schedule A of this Order, but does not include Revco's business of selling other products in those Retail Drug Stores. P. "Revco Pharmacy Assets" means all assets constituting the Revco Pharmacy Business, excluding those assets pertaining to the Revco trade names, trade dress, trade marks and service marks, and including but not limited to:
Q. "Virginia Assets to be Divested" means the Revco Retail Drug Store Assets described in Schedule B of this Order. R. "Revco Virginia Assets" means all of Revco's Retail Drug Store Assets located in the State of Virginia. S. "New York Assets to be Divested" means the Revco Retail Drug Store Assets described in Schedule A of this Order. T. "CVS Binghamton Assets" means all of the CVS Retail Drug Store Assets located in the Binghamton, New York MSA. U. "Eckerd Agreement" means the Purchase and Sale Agreement between Eckerd and CVS executed on May 16, 1997, for the divestiture by Respondents to Eckerd of the Virginia Assets to be Divested. V. "Medicine Shoppe Agreement" means the Purchase and Sale Agreement between Pharmacy Operations or Medicine Shoppe and CVS executed on May 21, 1997, for the divestiture by Respondents to Medicine Shoppe of the Revco Pharmacy Assets to be Divested. II. IT IS FURTHER ORDERED that: A. Respondents shall divest, absolutely and in good faith, the Virginia Assets to be Divested to: 1. Eckerd, in accordance with the Eckerd Agreement dated May 16, 1997, no later than,
whichever is later; or 2. an Acquirer that receives the prior approval of the Commission and only in a manner that receives the prior approval of the Commission, within three (3) months after the date on which this Order becomes final; provided that the closing date of the Eckerd Agreement or any other agreement pursuant to which the Virginia Assets to be Divested are divested to an Acquirer shall not occur until after Respondents have obtained all required Landlord Consents. B. Respondents shall divest, absolutely and in good faith, either: 1. the Revco Pharmacy Assets to Medicine Shoppe or Pharmacy Operations in accordance with the Medicine Shoppe Agreement May 21, 1997, no later than,
whichever is later; or 2. the New York Assets to be Divested to an Acquirer that receives the prior approval of the Commission and only in a manner that receives the prior approval of the Commission, within three (3) months after the date on which this Order becomes final; provided that the closing date of the Medicine Shoppe Agreement or any other agreement pursuant to which the New York Assets to be Divested are divested to an Acquirer shall not occur until after Respondents have obtained all required Landlord Consents. C. The purpose of the divestitures described herein is to ensure the continued operation of the divestiture assets as assets engaged in the retail sale of pharmacy services to third party payors, and to remedy any lessening of competition resulting from the Acquisition as alleged in the Commission's complaint. III. IT IS FURTHER ORDERED that: A. If Respondents fail to divest absolutely and in good faith the Virginia Assets to be Divested pursuant to Paragraph II.A. of this Order, the Commission may appoint a trustee to divest the Revco Virginia Assets. B. If Respondents fail to divest absolutely and in good faith either the New York Assets to be Divested or the Revco Pharmacy Assets pursuant to Paragraph II.B. of this Order, the Commission may appoint a trustee to divest the CVS Binghamton Assets. C. In the event that the Commission or the Attorney General brings an action pursuant to 5(1) of the Federal Trade Commission Act, 15 U.S.C. 45(1), or any other statute enforced by the Commission, Respondents shall consent to the appointment of a trustee in such action. Neither the appointment of a trustee nor a decision not to appoint a trustee under this Paragraph shall preclude the Commission or the Attorney General from seeking civil penalties or any other relief available to it, including a court-appointed trustee pursuant to 5(1) of the Federal Trade Commission Act, or any other statute enforced by the Commission, for any failure by Respondents to comply with this Order. D. The trustee appointed to accomplish any divestiture pursuant to Paragraphs III.A. or III.B. may be the same person. If a trustee is appointed by the Commission or a court pursuant to Paragraphs III.A. or III.B. of this Order, Respondents shall consent to the following terms and conditions regarding the trustee's powers, duties, authority, and responsibilities: 1. The Commission shall select the trustee(s), subject to the consent of Respondents, which consent shall not be unreasonably withheld. The trustee shall be a person with experience and expertise in acquisitions and divestitures. If Respondents have not opposed, in writing, including the reasons for opposing, the selection of any proposed trustee within ten (10) days after notice by the staff of the Commission to Respondents of the identity of any proposed trustee, Respondents shall be deemed to have consented to the selection of the proposed trustee. 2. Subject to the prior approval of the Commission, the trustee shall have the exclusive power and authority to accomplish the divestitures described in Paragraphs III.A. and III.B. 3. Within ten (10) days after appointment of the trustee, Respondent shall execute a trust agreement that, subject to the prior approval of the Commission, and in the case of a court-appointed trustee, of the court, transfers to the trustee all rights and powers necessary to permit the trustee to effect each divestiture required by this Order. 4. The trustee shall have twelve (12) months from the date the Commission approves the trust agreement described in Paragraph III.D.3. to accomplish each divestiture, which shall be subject to the prior approval of the Commission. If, however, at the end of the twelve (12) month period, the trustee has submitted a plan for each divestiture required by this Order or believes that each divestiture required by this Order can be achieved within a reasonable time, then that divestiture period may be extended by the Commission, or, in the case of a court-appointed trustee, by the court; provided, however, the Commission may extend the period for each divestiture only two (2) times. 5. The trustee shall have full and complete access to the personnel, books, records and facilities related to the Revco Virginia Assets and the CVS Binghamton Assets or to any other relevant information, as the trustee may request. Respondents shall develop such financial or other information as such trustee may request and shall cooperate with the trustee. Respondents shall take no action to interfere with or impede the trustee's accomplishment of each divestiture. Any delays in any divestiture caused by Respondents shall extend the time for that divestiture under this Paragraph in an amount equal to the delay, as determined by the Commission or, for a court-appointed trustee, by the court. 6. The trustee shall use his or her best efforts to negotiate the most favorable price and terms available in each contract that is submitted to the Commission, subject to Respondents' absolute and unconditional obligation to make each divestiture required by this Order at no minimum price. Each divestiture shall be made in the manner consistent with the terms of this Order; provided, however, if the trustee receives bona fide offers from more than one acquiring entity, and if the Commission determines to approve more than one such acquiring entity, the trustee shall divest to the acquiring entity or entities selected by Respondents from among those approved by the Commission. 7. The trustee shall serve, without bond or other security, at the cost and expense of Respondents, on such reasonable and customary terms and conditions as the Commission or a court may set. The trustee shall have the authority to employ, at the cost and expense of Respondents, and at reasonable fees, such consultants, accountants, attorneys, investment bankers, business brokers, appraisers, and other representatives and assistants as are necessary to carry out the trustee's duties and responsibilities. The trustee shall account for all monies derived from each divestiture and all expenses incurred. After approval by the Commission and, in the case of a court-appointed trustee, by the court, of the account of the trustee, including fees for his or her services, all remaining monies shall be paid at the direction of the Respondents, and the trustee's power shall be terminated. The trustee's compensation shall be based at least in significant part on a commission arrangement contingent on the trustee's accomplishing each divestiture required by Paragraphs III.A. and III.B. 8. Respondents shall indemnify the trustee and hold the trustee harmless against any losses, claims, damages, liabilities, or expenses arising out of, or in connection with, the performance of the trustee's duties, including all reasonable fees of counsel and other expenses incurred in connection with the preparation for, or defense of any claim, whether or not resulting in any liability, except to the extent that such liabilities, losses, damages, claims, or expenses result from misfeasance, gross negligence, willful or wanton acts, or bad faith by the trustee. 9. If the trustee ceases to act or fails to act diligently, a substitute trustee shall be appointed in the same manner as provided in this Paragraph. 10. The Commission or, in the case of a court-appointed trustee, the court, may on its own initiative or at the request of the trustee issue such additional orders or directions as may be reasonably necessary or appropriate to accomplish each divestiture required by this Order. 11. The trustee shall also divest such additional ancillary assets and businesses and effect such arrangements as are necessary to assure the marketability and the viability and competitiveness of the Revco Virginia Assets and the CVS Binghamton Assets. 12. The trustee shall have no obligation or authority to operate or maintain the Revco Virginia Assets or the CVS Binghamton Assets. 13. The trustee shall report in writing to Respondents and the Commission every sixty (60) days concerning the trustee's efforts to accomplish each divestiture required by this Order. IV. IT IS FURTHER ORDERED that: A. Pending the divestiture of the Virginia Assets to be Divested pursuant to Paragraph II.A. and either the Revco Pharmacy Assets or the New York Assets to be Divested pursuant to Paragraph II.B., the Revco Virginia Assets pursuant to Paragraph III.A., or the CVS Binghamton Assets pursuant to Paragraph III.B., Respondents shall take such actions as are necessary to maintain the viability, marketability and competitiveness of all of these assets, and to prevent the destruction, removal, wasting, deterioration, or impairment of any of these assets except for ordinary wear and tear. B. Respondents shall comply with all terms of the Asset Maintenance Agreement, attached to this Order and made a part hereof as Appendix I. The Asset Maintenance Agreement shall continue in effect until such time as all the divestitures required by this Order have been accomplished. V. IT IS FURTHER ORDERED that within thirty (30) days after the date this Order becomes final and every thirty (30) days thereafter until Respondents have fully complied with the provisions of Paragraphs II. and III. of this Order, Respondents shall submit to the Commission verified written reports setting forth in detail the manner and form in which it intends to comply, is complying, and has complied with the requirements of this Order. Respondents shall include in their compliance reports, among other things that are required from time to time, a full description of the efforts being made to comply with Paragraphs II. and III. of the Order, including a description of all substantive contacts or negotiations for each divestiture and the identity of all parties contacted. Respondents shall include in their compliance reports copies of all written communications to and from such parties, all internal memoranda, and all reports and recommendations concerning each divestiture. VI. IT IS FURTHER ORDERED that Respondents shall notify the Commission at least thirty (30) days prior to any proposed change in the corporate Respondents such as dissolution, assignment, sale resulting in the emergence of a successor corporation, or the creation or dissolution of subsidiaries or any other change in the corporation that may affect compliance obligations arising out of the Order. VII. IT IS FURTHER ORDERED that, for the purpose of determining or securing compliance with this Order, Respondents shall permit any duly authorized representative of the Commission: A. Access, during office hours and in the presence of counsel, to inspect and copy all books, ledgers, accounts, correspondence, memoranda and other records and documents in the possession or under the control of Respondents relating to any matters contained in this Order; and B. Upon five days' notice to Respondents and without restraint or interference from Respondents, to interview officers, directors, or employees of Respondents. Signed this day of , 1997. FEDERAL TRADE COMMISSION By: __________________________ APPROVED: ____________________________ _____________________________ _____________________________ CVS CORPORATION By: __________________________ By: __________________________ REVCO D.S., INC. By: Jack A. Staph By: Louis R. Sernoff, Esquire SCHEDULE A REVCO NEW YORK STORE LISTING
SCHEDULE B REVCO VIRGINIA STORE LISTING
APPENDIX I UNITED STATES OF
AMERICA In the Matter of CVS CORPORATION, a corporation, File No. 971-0060 ASSET MAINTENANCE AGREEMENT This Asset Maintenance Agreement ("Agreement") is by and between CVS Corporation ("CVS"), a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at One CVS Drive, Woonsocket, Rhode Island 02895; Revco D.S., Inc. ("Revco"), a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 1925 Enterprise Parkway, Twinsburg, Ohio 44087 (collectively "Proposed Respondents"); and the Federal Trade Commission ("Commission"), an independent agency of the United States Government, established under the Federal Trade Commission Act of 1914, 15 U.S.C. 41, et seq. (collectively "the Parties"). PREMISES WHEREAS, CVS has proposed to acquire all of the outstanding voting securities of and to merge (through a wholly-owned subsidiary) with Revco D.S., Inc., pursuant to an agreement and plan of merger dated February 6, 1997 ("the proposed Acquisition"); and WHEREAS, the Commission is now investigating the proposed Acquisition to determine if it would violate any of the statutes the Commission enforces; and WHEREAS, if the Commission accepts the attached Agreement Containing Consent Order ("Consent Order"), the Commission is required to place it on the public record for a period of sixty (60) days for public comment and may subsequently either withdraw such acceptance or issue and serve its Complaint and its Decision and final Order in disposition of the proceeding pursuant to the provisions of Section 2.34 of the Commission's Rules; and WHEREAS, the Commission is concerned that if an agreement is not reached preserving the status quo ante of the Revco Virginia Assets, the Virginia Assets to be Divested, the Revco Pharmacy Assets, the New York Assets to be Divested, and the CVS Binghamton Assets as described in the attached Consent Order (hereinafter sometimes referred to as "Assets") during the period prior to their divestiture, any divestiture resulting from any administrative proceeding challenging the legality of the Acquisition might not be possible, or might produce a less than effective remedy; and WHEREAS, the Commission is concerned that prior to any divestitures to the Acquirer(s) approved by the Commission, it may be necessary to preserve the continued viability and competitiveness of the Assets; and WHEREAS, the purpose of this Agreement and of the Consent Order is to preserve the Assets pending the divestitures to the Acquirer(s) approved by the Commission under the terms of the Order, in order to remedy any anticompetitive effects of the proposed Acquisition; and WHEREAS, Proposed Respondents entering into this Agreement shall in no way be construed as an admission by Proposed Respondents that the proposed Acquisition is illegal; and WHEREAS, Proposed Respondents understand that no act or transaction contemplated by this Agreement shall be deemed immune or exempt from the provisions of the antitrust laws or the Federal Trade Commission Act by reason of anything contained in this Agreement. NOW, THEREFORE, in consideration of the Commission's agreement that at the time it accepts the Consent Order for public comment it will grant early termination of the Hart-Scott-Rodino waiting period, the Parties agree as follows: TERMS OF AGREEMENT 1. Proposed Respondents agree to execute, and upon its issuance to be bound by, the attached Consent Order. The Parties further agree that each term defined in the attached Consent Order shall have the same meaning in this Agreement. 2. Proposed Respondents agree that from the date Proposed Respondents sign this Agreement until the earlier of the dates listed in subparagraphs 2.a. and 2.b., Proposed Respondents will comply with the provisions of this Agreement: a. three (3) business days after the Commission withdraws its acceptance of the Consent Order pursuant to the provisions of Section 2.34 of the Commission's Rules; or b. the date the divestitures as set out in the Consent Order have been completed. 3. Proposed Respondents shall maintain the viability and marketability of the Assets, and shall not cause the wasting or deterioration of the Assets, nor shall they sell, transfer, encumber or otherwise impair their marketability or viability. 4. Proposed Respondents shall maintain the competitiveness of the Assets. This includes, but is not limited to, maintaining promotions and discount policies, and continuing specific store services (such as, for example, hours of operation and operation of specific departments). In particular, Proposed Respondents shall continue to offer to customers who obtain pharmacy services at the Assets the same type and quality of pharmacy services that are offered at the Proposed Respondents' retail drug stores that are not subject to the Consent Order's divestiture provisions. 5. Should the Commission seek in any proceeding to compel Proposed Respondents to divest themselves of the Assets or to seek any other injunctive or equitable relief, Proposed Respondents shall not raise any objection based upon the expiration of the applicable Hart-Scott-Rodino Antitrust Improvements Act waiting period or the fact that the Commission has not sought to enjoin the proposed Acquisition. Proposed Respondents also waive all rights to contest the validity of this Agreement. 6. For the purpose of determining or securing compliance with this Agreement, subject to any legally recognized privilege, and upon written request with five (5) days' notice to Proposed Respondents and to their principal office(s), Proposed Respondents shall permit any duly authorized representative or representatives of the Commission:
7. This Agreement shall not be binding until approved by the Commission. Signed this day of , 1997. CVS CORPORATION, a corporation By: ___________________________ ___________________________ By: Jack A. Staph By: Louis R. Sernoff, Esquire FEDERAL TRADE COMMISSION By: ___________________________ Consent agreement accepted for public comment by the Commission on May 29, 1997. Donald S. Clark UNITED STATES OF
AMERICA In the Matter of CVS CORPORATION, a corporation, Docket No. C- COMPLAINT The Federal Trade Commission ("Commission"), having reason to believe that CVS Corporation, through a wholly-owned subsidiary, North Acquisition Corp., has agreed to acquire Revco D.S., Inc., all corporations subject to the jurisdiction of the Commission, in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. 45; and it appearing to the Commission that a proceeding in respect thereof would be in the public interest, hereby issues its Complaint, stating its charges as follows: I. DEFINITION 1. For the purposes of this complaint, "MSA" means Metropolitan Statistical Area as defined by the United States Department of Commerce, Bureau of the Census. II. RESPONDENTS 2. Respondent CVS Corporation ("CVS") is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at One CVS Drive, Woonsocket, Rhode Island 02895. 3. Respondent Revco D.S., Inc. ("Revco") is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Delaware, with its office and principal place of business located at 1925 Enterprise Parkway, Twinsburg, Ohio 44087. 4. For purposes of this proceeding, Respondents are, and at all times relevant herein have been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and are corporations whose businesses are in or affecting commerce as "commerce" is defined in Section 4 of the FTC Act, as amended, 15 U.S.C. 44. III. THE ACQUISITION 5. On February 6, 1997, CVS, through a wholly-owned subsidiary, North Acquisition Corp., entered into an Agreement and Plan of Merger to acquire and merge with Revco ("the Acquisition"). IV. THE RELEVANT MARKETS 6. For purposes of this Complaint, the relevant line of commerce in which to analyze the effect of the Acquisition is the retail sale of pharmacy services to third-party payors such as insurance carriers, health maintenance organizations, preferred provider organizations, and corporate employers. Pharmacy services refers to the filling of prescription drugs and related pharmacy service benefits. Third-party payors offer retail pharmacy service benefits to their beneficiaries, typically through intermediaries known as pharmacy benefit management firms or PBMs, who create and administer retail pharmacy networks on behalf of third-party payors, so that the beneficiaries of these third-party payors may go to any pharmacy participating in the retail pharmacy network to have their prescriptions filled. 7. For purposes of this Complaint, the relevant sections of the country in which to analyze the effect of the Acquisition are:
8. The relevant markets set forth in Paragraphs 6 and 7 are highly concentrated, whether measured by Herfindahl-Hirschmann Indices ("HHI") or two-firm and four-firm concentration ratios. 9. Entry into the relevant markets is difficult or unlikely to occur at a sufficient scale to deter or counteract the effect of the Acquisition described in Paragraph 5. 10. CVS and Revco are actual competitors in the relevant markets. V. EFFECT OF THE ACQUISITION 11. The effect of the Acquisition may be substantially to lessen competition and to tend to create a monopoly in the relevant markets in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, in the following ways, among others:
12. All of the above increase the likelihood that firms in the relevant markets will increase prices and restrict output both in the near future and in the long term. VI. VIOLATIONS CHARGED 13. The acquisition agreement described in Paragraph 5 constitutes a violation of Section 5 of the FTC Act, as amended, 15 U.S.C. 45. 14. The Acquisition described in paragraph 5, if consummated, would constitute a violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. 45. IN WITNESS WHEREOF, the Federal Trade Commission has caused this Complaint to be signed by the Secretary and its official seal to be affixed, at Washington, D.C. this _____ day of _______________ A.D. 1997. By the Commission. Donald S. Clark SEAL Analysis of Proposed Consent
Order The Federal Trade Commission ("Commission") has accepted, subject to final approval, an agreement containing a proposed Consent Order from CVS Corporation and Revco D.S. Inc. (collectively, "the respondents") under which the respondents would be required to divest a total of 114 Revco retail drug stores in the state of Virginia to Eckerd Corporation, a subsidiary of J.C. Penney Company, or to another Commission-approved purchaser, and certain pharmacy assets related to six Revco retail drug stores in the Binghamton, New York metropolitan area to Medicine Shoppe, a subsidiary of Cardinal Health, or another Commission-approved purchaser. The agreement is designed to remedy the anticompetitive effects resulting from CVS's proposed acquisition of Revco. The proposed Consent Order has been placed on the public record for sixty days for reception of comments by interested persons. Public comment is invited regarding all aspects of the agreement including the proposed divestitures to Eckerd Corporation and Medicine Shoppe. Comments received during this period will become part of the public record. After sixty days, the Commission will again review the agreement and the comments received and will decide whether it should withdraw from the agreement or make final the agreement's proposed Order. The proposed complaint alleges that the proposed acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. 45, in the market for the retail sale of pharmacy services to third-party payors in the State of Virginia and the Binghamton, New York, metropolitan area. The retail sale of pharmacy services to third-party payors refers to prescription drugs sold by retail outlets such as drug store chains, independent drug stores, food stores and mass merchandise stores to third-party payors, which include insurance carriers, health maintenance organizations, preferred provider organizations, and corporate employers. Third-party payors provide retail pharmacy service benefits to their beneficiaries, typically through intermediaries known as pharmacy benefit management ("PBM") firms that create and administer retail pharmacy networks on behalf of third-party payors, whereby third-party payor beneficiaries may go to any pharmacy participating in the network to have prescriptions filled. In establishing these pharmacy networks, third-party payors generally rely on competition among large pharmacy chains to keep the cost of pharmacy services competitive. In markets where only a small number of pharmacy chains compete, third-party payors may pay higher rates for pharmacy services. Where a single pharmacy chain controls a large share of pharmacy locations in a given area, the chain is able to extract higher prices. For purposes of assessing competitive harm in the market for the retail sale of pharmacy services to third-party payors, both states and metropolitan statistical areas may be appropriate geographic areas. Many third-party payors require coverage for their beneficiaries throughout a state or just in certain metropolitan areas where the majority of their beneficiaries reside. While the geographic areas in which to assess the potential competitive harm of a proposed acquisition depend on where particular third-party payors' beneficiaries reside, states and MSAs are close proxies for such plan-by-plan analysis. CVS's proposed acquisition of Revco will give the combined entity a dominant position both in the state of Virginia and in the Binghamton, New York, metropolitan area. As a result, the complaint alleges that third-party payors would be unable cost-effectively to assemble pharmacy networks that did not include CVS or Revco stores, and therefore, CVS would be able to increase prices for the retail sale of pharmacy services to third-party payors. The complaint also alleges that timely entry in the market for the retail sale of pharmacy services to third-party payors in these geographic markets on the scale necessary to offset the competitive harm resulting from the combination of CVS and Revco is unlikely. The proposed Consent Order would remedy the alleged violations by requiring divestitures to restore the lost competition that would result from the acquisitions. Under the proposed Consent Order, the respondents would be required to divest 114 Revco drug stores in Virginia to Eckerd or to a Commission-approved purchaser. The proposed Consent Order also requires the respondents to divest either specific pharmacy assets related to six Revco drug stores in the Binghamton, New York, metropolitan area to Medicine Shoppe International, Inc., or its subsidiary, Pharmacy Operations, Inc., or, six Revco drug stores in the Binghamton, New York, area to a Commission-approved purchaser. The respondents have ten days from the date the Order becomes final or four months after the Commission accepts the Agreement Containing Consent Order for public comment, whichever is later, to accomplish each divestiture to the named purchaser. Alternatively, if the respondents do not divest to Eckerd or Medicine Shoppe, they must divest to alternative Commission-approved buyers three months from the date the Order becomes final. The proposed Order requires that the assets being divested in Virginia and Binghamton, New York, each go to a single purchaser in order to ensure competition by recreating a chain of sufficient size and coverage to serve as an alternative anchor pharmacy chain for a PBM retail pharmacy network. Under the proposed Order, if either divestiture is not accomplished within the required time period, then the Commission may appoint a trustee to divest all 234 Revco drug stores in Virginia and the eleven CVS drug stores in the Binghamton, New York, metropolitan area, whichever applies. These "crown jewel" provisions in the proposed Order help ensure that a trustee would be able to accomplish each divestiture. The Order also contains an Asset Maintenance Agreement that requires CVS, pending divestiture, to maintain the Revco stores and assets relating to the Revco stores in the same condition and in the same business as they have been operating prior to the acquisition. Under the proposed Order, the respondents must submit an initial report on compliance with the terms of the Asset Maintenance Agreement and on how they intend to comply with the divestiture provisions of the proposed Order. In addition, the respondents must provide the Commission with a report of compliance with the divestiture provisions of the Order within thirty days following the date this Order becomes final, and every thirty days thereafter until CVS and Revco have fully complied with the divestiture provisions of the proposed Order. The purpose of this analysis is to facilitate public comment on the proposed Order, and it is not intended to constitute an official interpretation of the agreement and proposed Order or to modify in any way their terms. |