ANALYSIS OF PROPOSED
The Federal Trade Commission ("Commission") has accepted, subject to final approval, an agreement containing a proposed Consent Order from S.C. Johnson & Son, Inc. ("S.C. Johnson"), which is designed to remedy the anticompetitive effects resulting from S.C. Johnsons acquisition of the home care and home food management businesses of DowBrands Inc., DowBrands L.P. and DowBrands Canada Inc. (hereinafter collectively "DowBrands"). Under the terms of the agreement, S.C. Johnson will be required to divest DowBrands "Spray ?n Wash," "Spray ?n Starch" and "Glass Plus" businesses to Reckitt & Colman, Inc. ("Reckitt & Colman"), the U.S. wholly-owned subsidiary of the British company, Reckitt & Colman plc. If the sale of these assets is not made to Reckitt & Colman, S.C. Johnson will be required to divest the Spray 'n Wash, Spray 'n Starch, and Glass Plus businesses, as well as DowBrands Urbana, Ohio manufacturing plant and DowBrands "Yes" laundry detergent, "Vivid" color-safe bleach, and oven cleaner businesses, to a Commission-approved buyer.
The proposed Consent Order has been placed on the public record for sixty (60) days for reception of comments by interested persons. Comments received during this period will become part of the public record. After sixty (60) days, the Commission will again review the proposed Consent Order and the comments received, and will decide whether it should withdraw from the proposed Consent Order or make final the proposed Order.
On October 27, 1997, S.C. Johnson and DowBrands entered into Asset Purchase Agreements under which S.C. Johnson agreed to acquire the home care and home food management businesses of DowBrands for approximately $1.125 billion. The proposed Complaint alleges that the acquisition, if consummated, would violate Section 7 of the Clayton Act, as amended, 15 U.S.C § 18, and Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. § 45, in the markets for the research, development, manufacture and sale of soil and stain remover products and glass cleaner products.
Soil and stain removers are products used by consumers in conjunction with laundry detergent to remove specific and isolated stains from clothing. S.C. Johnson, which sells "SHOUT," and DowBrands, which sells "Spray 'n Wash," are the two leading U.S. suppliers of soil and stain removers. S.C. Johnson, which sells "Windex," and DowBrands, which sells "Glass Plus," are also the two leading U.S. suppliers of glass cleaners, which are used by consumers to clean glass, mirrors and other surfaces.
The soil and stain remover and glass cleaner markets are highly concentrated, and the proposed acquisition would substantially increase concentration in each market. In the soil and stain remover market, the acquisition would result in an increase in the Herfindahl-Hirschman Index ("HHI") of 5,646 points, which is an increase of 2,730 points over the premerger HHI level. In the glass cleaner market, the post-merger HHI would be 4,920 points, which is an increase of 1,180 points over the premerger HHI level. By eliminating competition between the top two competitors in these highly concentrated markets, the proposed acquisition would allow S.C. Johnson to unilaterally exercise market power in each market, thereby increasing the likelihood that: (1) soil and stain remover and glass cleaner customers would be forced to pay higher prices; (2) innovation in these markets would decrease; and (3) advertising and promotion in these markets would be reduced.
The relevant geographic market is the United States. It is unlikely that the competition eliminated by the proposed transaction would be replaced by foreign manufacturers of soil and stain removers and glass cleaners. Foreign manufacturers of these products are unable to compete effectively in the U.S. because they lack the necessary brand recognition among U.S. consumers and face substantial transportation costs, which make importing their products into the U.S. uneconomical.
In addition, new entry would not deter or counteract the anticompetitive effects likely to flow from the proposed transaction. A new entrant into either the soil and stain remover or glass cleaner market would need to undertake the difficult, expensive and time-consuming process of developing a competitive product, creating brand recognition among consumers, and establishing a viable distribution network. Because of the difficulty of accomplishing these tasks, new entry into either market could not be accomplished in a timely manner. Moreover, because of the high costs involved, it is not likely that new entry into either market would occur at all, even if prices were to increase substantially after the transaction.
The proposed Consent Order naming S.C. Johnson as respondent effectively remedies the acquisitions anticompetitive effects in the soil and stain remover and glass cleaner markets by requiring S.C. Johnson to divest DowBrands Spray 'n Wash, Spray 'n Starch, and Glass Plus businesses to a third party. Pursuant to the Consent Agreement, S.C. Johnson is required to divest these businesses to Reckitt & Colman, no later than 10 business days from the date the Commission accepts this Agreement for public comment. In the event S.C. Johnson fails to divest to Reckitt & Colman, the Consent Agreement contains a "crown jewel" provision that requires S.C. Johnson to divest DowBrands Spray 'n Wash, Spray 'n Starch, and Glass Plus businesses, as well as, at the acquirers option, DowBrands Urbana, Ohio manufacturing plant and DowBrands "Yes" laundry detergent, "Vivid" color-safe bleach, and oven cleaner businesses, within six months from the date S.C. Johnson signed the Consent Agreement. If S.C. Johnson fails to divest the crown jewel assets within this six-month time period, the Commission may appoint a trustee to divest these assets.
In order to provide the acquirer with DowBrands soil and stain remover and glass cleaner products during a transition period, the Consent Agreement requires S.C. Johnson, at the acquirers option, to provide to the acquirer a twelve-month supply of these products at cost. The Order also requires S.C. Johnson to provide the Commission a report of compliance with the divestiture provisions of the Order within thirty (30) days following the date the Order becomes final, every thirty (30) days thereafter until S.C. Johnson has completed the required divestiture, and every ninety (90) days thereafter until S.C. Johnson has completed its obligations under the supply agreement.
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.