0010120

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of

SWEDISH MATCH NORTH AMERICA INC., a corporation and
NATIONAL TOBACCO COMPANY, L.P., a limited partnership.

Docket No. 9296

COMPLAINT

The Federal Trade Commission ("Commission"), having reason to believe that respondents Swedish Match North America Inc. ("Swedish Match"), a corporation, and National Tobacco Company, L.P. ("National"), a limited partnership, entered into an agreement for the acquisition by Swedish Match of the loose leaf chewing tobacco business of National, in violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, which 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, and that a proceeding in respect thereof would be in the public interest, hereby issues its complaint, stating its charges as follows:

RESPONDENT SWEDISH MATCH NORTH AMERICA INC.

1. Respondent Swedish Match North America Inc. is a corporation organized and existing under the laws of the State of Delaware, with its principal place of business at 6600 West Broad Street, Richmond, Virginia 23230-1558. Defendant Swedish Match North America Inc. is a wholly owned subsidiary of Swedish Match AB, a foreign corporation headquartered in Stockholm, Sweden.

2. Swedish Match manufactures and sells primarily loose leaf and moist snuff tobacco. It produces loose leaf and moist snuff tobacco at its plant in Owensboro, Kentucky. Swedish Match is the largest producer of loose leaf chewing tobacco in the United States. In 1999, its loose leaf chewing tobacco sales totaled $127 million.

RESPONDENT NATIONAL TOBACCO COMPANY, L.P.

3. Respondent National Tobacco Company, L.P. is a limited partnership organized and existing under the laws of the state of Delaware, with its principal place of business at 257 Park Avenue South, New York, New York 10010-7304.

4. National primarily manufactures and sells loose leaf chewing tobacco and is the third largest producer of loose leaf chewing tobacco in the United States. In 1999, National's sales of loose leaf chewing tobacco totaled $53 million.

JURISDICTION

5. Swedish Match is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a corporation whose business is in or affects commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. 44.

6. National is, and at all times relevant herein has been, engaged in commerce as "commerce" is defined in Section 1 of the Clayton Act, as amended, 15 U.S.C. 12, and is a partnership whose business is in or affects commerce as "commerce" is defined in Section 4 of the Federal Trade Commission Act, as amended, 15 U.S.C. 44.

THE ACQUISITION

7. Pursuant to an Asset Purchase Agreement dated February 10, 2000, Swedish Match proposes to acquire the loose leaf chewing tobacco brands and certain other assets of National for approximately $165 million (the "Acquisition").

8. On June 22, 2000, the Commission authorized the commencement of an action under Section 13(b) of the FTC Act to seek a preliminary injunction barring the Acquisition during the pendency of administrative proceedings.

9. On December 14, 2000, the United States District Court for the District of Columbia ordered that Swedish Match and National, their officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them, are restrained and enjoined from any further performance of the February 10, 2000, asset purchase agreement, pending conclusion of administrative proceedings before the Federal Trade Commission or further order of the Court.

RELEVANT MARKET

10. A relevant line of commerce in which to assess the effects of the Acquisition is loose leaf chewing tobacco.

GEOGRAPHIC MARKET

11. The relevant geographic area in which to assess the effects of the Acquisition is the United States.

MARKET STRUCTURE

12. The loose leaf chewing tobacco market is highly concentrated.

13. Swedish Match is the largest maker and seller of loose leaf chewing tobacco in the United States, with sales accounting for approximately 42% of the loose leaf chewing tobacco market. Swedish Match sells loose leaf chewing tobacco under the "Red Man," "Red Man Golden Blend," "Red Man Select," "Southern Pride," "J.D.'s Blend," "Granger Select," "Workhorse," "Union Standard," "Pay Car," and "Red Horse" brand names. Red Man, the oldest chewing tobacco brand in the United States, is also the largest selling; Red Man Golden Blend is the fourth largest selling brand in the market.

14. National is the third largest maker and seller of loose leaf chewing tobacco in the United States, with sales accounting for approximately 18% of the loose leaf chewing tobacco market. National sells loose leaf chewing tobacco under the "Beech-Nut," "Beech-Nut Wintergreen," "Havana Blossom," "Trophy," and "Durango" brand names. Beech-Nut, the second oldest chewing tobacco brand in the United States, is the third largest selling brand in the nation.

15. Swedish Match and National are direct and actual competitors in the sale of loose leaf chewing tobacco. They compete with each other on price by, among other things, offering discounts and other promotions on the sale of their loose leaf products. Swedish Match and National each price and discount their products in response to each other's pricing, and in response to the pricing of the two other significant loose leaf chewing tobacco sellers.

16. The Acquisition would combine the first and third largest sellers of loose leaf chewing tobacco in the United States, and as a result Swedish Match will have approximately 60% of the loose leaf chewing tobacco sales in the United States. The acquisition would substantially increase concentration in the loose leaf chewing tobacco market in the United States, would increase the HHI by approximately 1514 points to approximately 4733, and would result in a highly concentrated market.

ENTRY CONDITIONS

17. Entry into the relevant product market would not be timely, likely, or sufficient in its magnitude, character, and scope to deter or counteract anticompetitive effects of the Acquisition.

ANTICOMPETITIVE EFFECTS OF THE ACQUISITION

18. The Acquisition may substantially lessen competition in the following ways, among others:

a. it would eliminate actual, direct and substantial competition between Swedish Match and National;
 
b. it would increase the level of concentration in the relevant market;

c. it may lead to increases in price for the relevant product;
 
d. it may increase barriers to entry into the relevant market;

e. it may give Swedish Match market power in the relevant market; and
 
f. it may allow Swedish Match unilaterally to exercise market power in the relevant market, through its control of the combined Swedish Match and National Tobacco portfolio of brands.

VIOLATIONS CHARGED

COUNT I -- ILLEGAL ACQUISITION

19. The allegations contained in Paragraphs 1-18 are repeated and realleged as though fully set forth here.

20. The effect of the Acquisition may be substantially to lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act, 15 U.S.C. 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45.

COUNT II -- ILLEGAL ACQUISITION AGREEMENT

21. The allegations contained in Paragraphs 1-18 are repeated and realleged as though fully set forth here.

22. Swedish Match and National, through the Asset Purchase Agreement described in Paragraph 7, have engaged in unfair methods of competition in or affecting commerce in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45.

NOTICE

Proceedings on the charges asserted against you in this complaint will be held before an Administrative Law Judge (ALJ) of the Federal Trade Commission, under Part 3 of the Commission's Rules of Practice, 16 C.F.R. Part 3. A copy of Part 3 of the Rules is enclosed with this complaint.

You may file an answer to this complaint. Any such answer must be filed within 20 days after service of the complaint on you. If you contest the complaint's allegations of fact, your answer must concisely state the facts constituting each ground of defense, and must specifically admit, deny, explain, or disclaim knowledge of each fact alleged in the complaint. You will be deemed to have admitted any allegations of the complaint that you do not so answer.

If you elect not to contest the allegations of fact set forth in the complaint, your answer shall state that you admit all of the material allegations to be true. Such an answer will constitute a waiver of hearings as to the facts alleged in the complaint and, together with the complaint, will provide a record basis on which the ALJ will file an initial decision containing appropriate findings and conclusions and an appropriate order disposing of the proceeding. Such an answer may, however, reserve the right to submit proposed findings and conclusions and the right to appeal the initial decision to the Commission under Section 3.52 of the Commission's Rules of Practice.

If you do not answer within the specified time, you waive your right to appear and contest the allegations of the complaint. The ALJ is then authorized, without further notice to you, to find that the facts are as alleged in the complaint and to enter an initial decision and a cease and desist order.

The ALJ will schedule an initial prehearing scheduling conference to be held not later than 7 days after the last answer is filed by any party named as a respondent in the complaint. Unless otherwise directed by the ALJ, the scheduling conference and further proceedings will take place at the Federal Trade Commission, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Rule 3.21(a) requires a meeting of the parties' counsel as early as practicable before the prehearing scheduling conference, and Rule 3.31(b) obligates counsel for each party, within 5 days of receiving a respondent's answer, to make certain initial disclosures without awaiting a formal discovery request.

A hearing on the complaint will begin on April 2, 2001 at 10:00 A.M. in Room 532, or such other date as determined by the ALJ. At the hearing, you will have the right to contest the allegations of the complaint and to show cause why a cease and desist order should not be entered against you.

NOTICE OF CONTEMPLATED RELIEF

Should the Commission conclude from the record developed in any adjudicative proceedings in this matter that the Asset Purchase Agreement described in Paragraph 7 violates Section 5 of the Federal Trade Commission Act, as amended, or that the proposed acquisition challenged in this proceeding would if consummated violate Section 7 of the Clayton Act, as amended, or Section 5 of the Federal Trade Commission Act, as amended, the Commission may order such relief against respondents as is supported by the record and is necessary and appropriate, including, but not limited to:

1. An order to cease and desist from any action to effect the acquisition by Swedish Match of any assets or securities of National.
 
2. Recission of the acquisition agreement between respondents.

3. Divestiture of an ongoing, operating business, including all assets, tangible and intangible, including but not limited to, all intellectual property, knowhow, trademarks, trade names, research and development, customer contracts, and including all improvements to existing products and new products developed by National.

4. Such other or additional relief as is necessary to ensure the creation of one or more viable, competitive independent entities to compete against Swedish Match in the manufacture and sale of loose leaf chewing tobacco.

5. A requirement, for a ten (10) year period, that Swedish Match and National provide the Commission with notice in advance of acquiring the assets or securities of, or any other combination with, any person engaged in the manufacture or sale of loose leaf chewing tobacco in the United States.

IN WITNESS WHEREOF, The Federal Trade Commission has caused this complaint to be signed by its Secretary and its official seal to be hereto affixed, at Washington, D.C. this twenty-first day of December, 2000.

By the Commission.

Donald S. Clark
Secretary

SEAL: