[Federal Register: May 15, 2008 (Volume 73, Number 95)]
[Notices]
[Page 28154-28166]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15my08-84]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Regal Cinemas, Inc. and Consolidated Theatres
Holdings, GP; Complaint, Proposed Final Judgment, and Competitive
Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. Section 1 6(b)-(h), that a Complaint, proposed
Final Judgment, Stipulation, and Competitive Impact Statement have been
filed with the United States District Court for the District of
Columbia in States of America v. Regal Cinemas, Inc. and Consolidated
Theatres Holdings, GP, Civil Action No. 08-00746. On April 29, 2008,
the United States filed a Complaint alleging that the proposed
acquisition by Regal Cinemas, Inc. of Consolidated Theatres Holdings,
GP, would violate Section 7 of the Clayton Act, 15 U.S.C. 18 by
lessening competition for theatrical exhibition of first-run movies in
Asheville, Charlotte, and Raleigh, North Carolina. The proposed Final
Judgment, filed the same time as the Complaint, requires the defendants
to divest first-run, commercial movie theatres, along with certain
tangible and intangible assets, in those three geographic regions in
order to proceed with the proposed $210 million transaction. A
Competitive Impact Statement filed by the United States on April 30,
2008 describes the Complaint, the proposed Final Judgment, the
industry, and the remedies available to private litigants who may have
been injured by the alleged violation.
Copies of the Complaint, proposed Final Judgment and Competitive
Impact Statement are available for inspection at the Department of
Justice in Washington, DC in Suite 1010, 450 Fifth Street, NW.,
Washington, DC 20530, and at the Office of the Clerk of the United
States District Court for the District of Columbia, Washington, DC.
Copies of these materials may be obtained from the Antitrust Division
upon request and payment of the copying fee set by Department of
Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Comments should be directed
to John R. Read, Chief, Litigation III Section, Suite 4000, Antitrust
Division, Department of Justice, 450 Fifth Street, NW., Washington, DC
20530, (telephone: 202 307-0468). At the conclusion of the sixty (60)
day comment period, the U.S. District Court for the District of
Columbia may enter the proposed consent decree upon finding that it
serves the public interest.
Patricia A. Brink,
Deputy Director of Operations, Antitrust Division.
United States District Court for the District of Columbia
United States of America, Plaintiff, v. Regal Cinemas, Inc., and
Consolidated Theatres Holdings, GP, Defendants.
Case: 1:08-cvOQ746.
Assigned To: Leon, Richard J.
Assign. Date: 4/29/2008.
Description: Antitrust.
Filed:
Complaint
The United States of America, acting under the direction of the
Attorney General of the United States, brings this
[[Page 28155]]
civil antitrust action to enjoin the proposed merger of Regal Cinemas,
Inc. and Consolidated Theatres, GP, and to obtain equitable relief. If
the merger is permitted to proceed, it would combine the two leading,
and in some cases only, operators of first-run, commercial movie
theatres in parts of the metropolitan areas of Charlotte, Raleigh, and
Asheville, North Carolina. The merger would substantially lessen
competition and tend to create a monopoly in the theatrical exhibition
of commercial, first-run movies in the above listed markets in
violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
I. Jurisdiction and Venue
This action is filed by the United States pursuant to Section 15 of
the Clayton Act, as amended, 15 U.S.C. 25, to obtain equitable relief
and to prevent a violation of Section 7 of the Clayton Act, as amended,
15 U.S.C. 18.
2. One defendant operates theatres in this District; the other
attracts patrons from and advertises in this District. In addition, the
distribution and exhibition of commercial, first-run films is a
commercial activity that substantially affects, and is in the flow of,
interstate trade and commerce. Defendant's activities in purchasing
equipment, services, and supplies as well as licensing films for
exhibitors substantially affect interstate commerce. The Court has
jurisdiction over the subject matter of this action and jurisdiction
over the parties pursuant to 15 U.S.C. 22, 25, and 26, and 28 U.S.C.
1331, 1337(a), and 1345.
3. Venue in this District is proper under 15 U.S.C. 22 and 28
U.S.C. 1391(c). In addition, defendants have consented to venue and
personal jurisdiction in this judicial district.
II. Defendants and the Proposed Merger
4. Regal Cinemas, Inc. (``Regal'') is a Tennessee corporation with
its headquarters in Knoxville. Regal operates more than 6,400 screens
at approximately 540 theatres in 39 states and the District of Columbia
under the Regal, United Artists, Edwards, and Hoyts names.
5. Consolidated Theatres Holdings, GP, is a North Carolina
partnership (hereinafter referred to as ``Consolidated''). Consolidated
operates 400 screens at 28 theatres in Georgia, Maryland, North
Carolina, South Carolina, Tennessee, and Virginia, with additional
theatres projected to open in the next few years, including the
Biltmore Grande 15, which is scheduled to open in Asheville, North
Carolina in August 2008.
6. On January 14, 2008, Regal and Consolidated signed a purchase
and sale agreement. The deal is structured as an asset purchase, with
Regal acquiring Consolidated for approximately $210 million.
III. Background of the Movie Industry
7. Theatrical exhibition of feature length motion picture films
(``movies'') provides a major source of out-of-home entertainment in
the United States. Although they vary, ticket prices for movies tend to
be significantly less expensive than many other forms of out-of-home
entertainment, particularly live entertainment such as sporting events
and live theatre.
8. Viewing movies in the theatre is a very popular pastime. Over
1.4 billion movie tickets were sold in the United States in 2007, with
total box office revenue exceeding $9.7 billion.
9. Companies that operate movie theatres are called ``exhibitors.''
Some exhibitors own a single theatre, whereas others own a circuit of
theatres within one or more regions of the United States. Established
exhibitors include AMC, Carmike, and Cinemark, as well as Regal and
Consolidated.
10. Exhibitors set ticket prices for each theatre based on a number
of factors, including the competitive situation facing each theatre,
the age of the theatres, the prices of nearby, comparable theatres, the
population demographics and density surrounding the theatre, and the
number and type of amenities each theatre offers, such as stadium
seating.
IV. Relevant Market
A. Product Market
11. Movies are a unique form of entertainment. The experience of
viewing a movie in a theatre is an inherently different experience from
live entertainment (e.g., a stage production), a sporting event, or
viewing a movie in the home (e.g, on a DVD or via pay-per-view).
12. Typically, viewing a movie at home lacks several
characteristics of viewing a movie in a theatre, including the size of
screen, the sophistication of sound systems, and the social experience
of viewing a movie with other patrons. Additionally, the most popular,
newly released or ``first-run'' movies are not available for home
viewing. Movies are considered to be in their ``first-run'' during the
four to five weeks following initial release in a given locality. If
successful, a movie may be exhibited at other theatres after the first
run as part of a second or subsequent run (often called a sub-run).
13. Reflecting the significant differences of viewing a movie in a
theatre, ticket prices for movies are generally very different from
prices for other forms of entertainment: Live entertainment is
typically significantly more expensive than a movie ticket, whereas
renting a DVD for home viewing is usually significantly cheaper than
viewing a movie in a theatre. Going to the movies is a different
experience from other forms of entertainment, and a small but
significant post-acquisition increase in ticket prices, or reduction in
discounts, for first-run commercial movies would not cause a sufficient
number of customers to shift to other forms of entertainment to make
such a price increase unprofitable.
14. Reflecting the significant difference between viewing a newly
released, first-run movie and an older sub-run movie, tickets at
theatres exhibiting first-run movies usually cost significantly more
than tickets at sub-run theatres. Movies exhibited at sub-run theatres
are no longer new releases, and moviegoers generally do not regard sub-
run movies as an adequate substitute for first-run movies and a small
but significant post-acquisition increase in ticket prices, or
reduction in discounts, for first-run commercial movies would not cause
a sufficient number of customers to switch to theatres exhibiting sub-
run movies to make such a price increase unprofitable.
15. Art movies and foreign language movies are also not substitutes
for commercial, first-run movies. Although art and foreign language
movies appeal to some viewers of commercial movies, potential audience
and demand conditions are quite distinct. For example, art movies tend
to appeal more universally to mature audiences and art movie patrons
tend to purchase fewer concessions. Exhibitors consider art theatre
operations as distinct from the operations of theatres that exhibit
commercial movies. Theatres that primarily exhibit art movies often
contain auditoriums with fewer seats than theatres that primarily play
commercial movies. Typically, art movies are released less widely than
commercial movies. A small but significant post-acquisition increase in
ticket prices, or reduction in discounts, for first-run commercial
movies would not cause a sufficient number of customers to switch to
theatres exhibiting art movies to make such a price increase
unprofitable.
16. Similarly, foreign language movies do not widely appeal to U.S.
audiences. As a result, moviegoers do not regard foreign language
movies as adequate substitutes for first-run, commercial
[[Page 28156]]
movies. A small but significant post-acquisition increase in ticket
prices, or reduction in discounts, for first-run movies would not cause
a sufficient number of customers to switch to theatres exhibiting
foreign language movies to make such a price increase unprofitable.
17. The relevant product market within which to assess the
competitive effects of this merger is the exhibition of first-run,
commercial movies.
B. Geographic Markets
18. Data show that moviegoers typically are not willing to travel
very far from their homes to attend a movie. As a result, geographic
markets for the exhibition of first-run, commercial movies are
relatively local.
Charlotte, North Carolina Area
19. Regal and Consolidated account for the vast majority of first-
run movie tickets sold in southern Charlotte, North Carolina
(``Southern Charlotte''), an area which encompasses Consolidated's
Philips 10 theatre, Consolidated's Arboretum 12, Regal's Crown Point 12
and Regal's Stonecrest 22 theatre. In this area, the only other
theatres showing first-run, commercial movies are an independent five-
plex stadium theatre and the AMC Carolina Pavilion 22, a stadium
theatre.
20. Moviegoers who reside in Southern Charlotte are reluctant to
travel significant distances out of that area to attend a movie except
in unusual circumstances. A small but significant increase in the price
of movie tickets in Southern Charlotte would not cause a sufficient
number of moviegoers to travel out of Southern Charlotte to make the
increase unprofitable. Southern Charlotte constitutes a relevant
geographic market in which to assess the competitive effects of this
merger.
Raleigh, North Carolina Area
21. Regal and Consolidated account for the vast majority of first-
run movie tickets sold in Northern Raleigh, North Carolina (``Northern
Raleigh''), which encompasses Regal's Brier Creek 14, Regal's North
Hills 14, and Consolidated's Raleigh Grand. The only other theatres
showing first-run, commercial movies in the Northern Raleigh area are
the sloped-floor, six screen Six Forks and the 15-screen Carmike
theatre with stadium seating.
22. Moviegoers who reside in Northern Raleigh are reluctant to
travel significant distances out of their area to attend a movie except
in unusual circumstances. A small but significant increase in the price
of movie tickets in Northern Raleigh would not cause a sufficient
number of moviegoers to travel out of Northern Raleigh to make the
increase unprofitable. Northern Raleigh constitutes a relevant
geographic market in which to assess the competitive effects of this
merger.
23. Regal and Consolidated account for all of the first-run movie
tickets sold in the suburb of Gamer to the south of Raleigh, North
Carolina (``Southern Raleigh''), which encompasses Regal's Garner Towne
Square 10 and Consolidated's White Oak 14. There are no other theatres
showing first-run, commercial movies in Southern Raleigh.
24. Moviegoers who reside in Southern Raleigh are reluctant to
travel significant distances out of their area to attend a movie except
in unusual circumstances. A small but significant increase in the price
of movie tickets in Southern Raleigh would not cause a sufficient
number of moviegoers to travel out of Southern Raleigh to make the
increase unprofitable. Southern Raleigh constitutes a relevant
geographic market in which to assess the competitive effects of this
merger.
Asheville, North Carolina Area
25. After the completion of Consolidated's Biltmore Grande 15
around August 2008, Regal and Consolidated will likely account for the
vast majority of first-run movie tickets sold in the Asheville, North
Carolina area (``Asheville''), which encompasses the area around
Regal's Hollywood 14 and the developing site of Consolidated's Biltmore
Grande 15. There are only two other non-Regal theatres showing first-
run, commercial movies in Asheville--a Carmike theatre with 10 screens
and a Fine Arts theatre with two screens.
26. Moviegoers in Asheville are reluctant to travel significant
distances out of that area to attend a movie except in unusual
circumstances. A small but significant increase in the price of movie
tickets in Asheville would not cause a sufficient number of moviegoers
to travel out of Asheville to make the increase unprofitable. Asheville
constitutes a relevant geographic market in which to assess the
competitive effects of this merger.
27. The exhibition of first-run, commercial movies in Southern
Charlotte, Northern Raleigh, Southern Raleigh and Asheville each
constitutes a relevant market (i.e., a line of commerce and a section
of the country) within the meaning of Section 7 of the Clayton Act, 15
U.S.C. 18.
V. Competitive Effects
28. Exhibitors compete on multiple dimensions to attract moviegoers
to their theatres over the theatres of their rivals. They compete over
the quality of the viewing experience. They compete to offer the most
sophisticated sound systems, best picture clarity, nicest seats with
best views, and cleanest floors and lobbies for moviegoers. And, to
gain market share, exhibitors seek to license the first-run movies that
are likely to attract the largest numbers of moviegoers. Exhibitors
also compete on price, knowing that if they charge too much (or do not
offer sufficient discounted tickets for matinees, seniors, children,
etc.), moviegoers will begin to frequent their rivals.
29. In the geographic markets of Southern Charlotte, Northern and
Southern Raleigh, and Asheville, Regal and Consolidated compete head-
to-head for moviegoers. These geographic markets are very concentrated
and in each market, Regal and Consolidated are the other's most
significant competitor given their close proximity to one another and
to local moviegoers, and from the perspective of such moviegoers, the
relative inferiority in terms of location, size or quality of other
theatres in the geographic markets. Their rivalry spurs each to improve
the quality of the viewing experience and keeps prices in check.
30. In Southern Charlotte, the proposed merger would give the newly
merged entity control of four of the six first-run, commercial theatres
in that area, with 56 out of 83 total screens and a 75% share of 2007
box office revenues, which totaled approximately $17.1 million. Using a
measure of market concentration called the Herfindahl-Hirschman index
(``HHI''), explained in Appendix A, the merger would yield a post-
merger HHI of approximately 6,058, representing an increase of roughly
2,535 points.
31. In Northern Raleigh, the proposed merger would give the newly
merged entity control of three of the five first-run, commercial
theatres in that area, with 44 of 65 total screens and 79% of 2007 box
office revenues, which totaled approximately $11.6 million. The merger
would yield a post-merger HHI of roughly 6,523, representing an
increase of around 2,315 points.
32. In Southern Raleigh, the proposed merger would give the newly
merged entity control of the only two theatres in this area. Therefore,
the market share of the combined entity would be 100% of screens and
100% of 2007 box office revenues, which totaled $3.5 million. The
merger would yield the highest post-merger HHI number possible--10,000,
representing an increase of 3,167 points.
[[Page 28157]]
33. In Asheville, after the completion of the Biltmore Grand 15,
the proposed merger would give the newly merged entity control of four
of the six first-run, commercial theatres with 41 of 53 total screens.
As measured by total screens only (since Consolidated does not yet have
box office revenues in Asheville), the combined entity would have a
market share of approximately 77% in Asheville. The merger would yield
a post-merger HHI of roughly 6,355, representing an increase of 2,777
points.
Today, were Regal or Consolidated to increase ticket prices in any
of the four geographic markets at issue and the others were not to
follow, the exhibitor that increased price would likely suffer
financially as a substantial number of its patrons would patronize the
other exhibitor. After the merger, the newly combined entity would re-
capture such losses, making price increases profitable that would have
been unprofitable pre-merger. Thus, the merger is likely to lead to
higher ticket prices for moviegoers, which could take the form of a
higher adult evening ticket price or reduced discounting, e.g., for
matinees, children, seniors, and students.
35. The proposed merger would also eliminate competition between
Regal and Consolidated over the quality of the viewing experience in
each of the geographic markets at issue. If no longer required to
compete, Regal and Consolidated would have reduced incentives to
maintain, upgrade, and renovate their theatres in the relevant markets,
to improve those theatres' amenities and services, and to license the
highest revenue movies, thus reducing the quality of the viewing
experience for a moviegoer.
36. The presence of the other theatres offering first-run,
commercial movies in certain of the relevant geographic markets would
be insufficient to replace the competition lost due to the merger, and
thus render unprofitable post-merger increases in ticket prices or
decreases in quality by the newly merged entity. For various reasons,
the other theatres in the relevant geographic markets offer less
attractive options for the moviegoers that are served by the Regal and
Consolidated theatres. For example, they are located further away from
these moviegoers than are the Regal and Consolidated theatres, they are
relatively smaller size or have fewer screens than the Regal and
Consolidated theatres, or they offer a lower quality viewing experience
than do the Regal and Consolidated theatres.
VI. Entry
37. The entry of a first-run, commercial movie theatre is unlikely
in all of the relevant markets. Exhibitors are reluctant to locate new
theatres near existing theatres unless the population density and
demographics make new entry viable or the existing theatres do not have
stadium seating. That is not the case here. Over the next two years,
the demand for more movie theatres in the areas at issue is not likely
to support entry of a new theatre. And all of these markets have or
will soon have theatres with stadium seating. Thus, no new first-run,
commercial theatres with the capability to reduce significantly the
newly merged entity's market power are likely to open within the next
two years in Southern Charlotte, Northern Raleigh, Southern Raleigh, or
Asheville in response to an increase in movie ticket prices or a
decline in theatre quality.
VII. Violation Alleged
38. The United States hereby reincorporates paragraphs 1 through
37.
39. The effect of the proposed merger would be to lessen
competition substantially in Southern Charlotte, Northern Raleigh,
Southern Raleigh and Asheville in violation of Section 7 of the Clayton
Act, 15 U.S.C. 18.
40. The transaction would likely have the following effects, among
others: (a) Prices for first-run, commercial movie tickets would likely
increase to levels above those that would prevail absent the merger,
and (b) quality of theatres and the theatre viewing experience in the
geographic area would likely decrease absent the merger.
VIII. Requested Relief
41. The plaintiffs request: (a) Adjudication that the proposed
merger would violate Section 7 of the Clayton Act; (b) permanent
injunctive relief to prevent the consummation of the proposed merger
and to prevent the defendants from entering into or carrying out any
agreement, understanding or plan, the effect of which would be to
combine the businesses or assets of defendants; (c) an award of the
plaintiff of its costs in this action; and (d) such other relief as is
proper.
Dated: April 29, 2008.
For Plaintiff United States of America.
David L. Meyer (DC Bar No. 414420), Acting Assistant Attorney
General, Antitrust Division.
Patricia A. Brink, Deputy Director of Operations.
John R. Read, Chief, Litigation III.
Nina B. Hale, Assistant Chief, Litigation III.
Gregg I. Malawer (DC Bar No. 481685), Jennifer Wamsley (DC Bar No.
486540), Anne Newton Mcfadden.
Attorneys for the United States, United States Department of
Justice, Antitrust Division, 450 5th Street, NW., Suite 4000,
Washington, DC 20530.
Exhibit A--Definition of HHI and Calculations for Market
``HHI'' means the Herfindahl-Hirschman Index, a commonly accepted
measure of market concentration. It is calculated by squaring the
market share of each firm competing in the market and then summing the
resulting numbers. For example, for a market consisting of four firms
with shares of thirty, thirty, twenty and twenty percent, the HHI is
2600 (30\2\ + 30\2\ + 20\2\ + 20\2\ = 2600). The HHI takes into account
the relative size and distribution of the firms in a market and
approaches zero when a market consists of a large number of firms of
relatively equal size. The HHI increases both as the number of firms in
the market decreases and as the disparity in size between those firms
increases.
Markets in which the HHI is between 1000 and 1800 points are
considered to be moderately concentrated, and those in which the HHI is
in excess of 1800 points are considered to be concentrated.
Transactions that increase the HHI by more than 100 points in
concentrated markets presumptively raise antitrust concerns under the
Merger Guidelines. See Merger Guidelines Sec. 1.51.
United States District Court for the District of Columbia
United States of America, Plaintiff, v. Regal Cinemas, Inc. and
Consolidated Theatres Holdings, GP, Defendants.
Civil Action No:
Judge:
Filed:
Final Judgment
Whereas, Plaintiff, United States of America filed its Complaint on
April 29, 2008, the United States and Defendants, Regal Cinemas, Inc.
(``Regal'') and Consolidated Theatres Holdings, GP (``Consolidated''),
by their respective attorneys, have consented to the entry of this
Final Judgment without trial or adjudication of any issue of fact or
law, and without this Final Judgment constituting any evidence against
or admission by any party regarding any issue of fact or law;
And whereas, Defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
And whereas, the essence of this Final Judgment is the prompt and
certain divestiture of certain rights or assets by the Defendants to
assure that competition is not substantially lessened;
[[Page 28158]]
And whereas, the United States requires Defendants to make certain
divestitures for the purpose of remedying the loss of competition
alleged in the Complaint;
And whereas, Defendants have represented to the United States that
the divestitures required below can and will be made and that
Defendants will later raise no claim of hardship or difficulty as
grounds for asking the Court to modify any of the divestiture
provisions contained below;
Now therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ordered. Adjudged and decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of and each of
the parties to this action. The Complaint states a claim upon which
relief may he granted against Defendants under Section 7 of the Clayton
Act, as amended (15 U.S.C. 18).
II. Definitions
As used in this Final Judgment:
A. ``Acquirer'' or ``Acquirers'' means the entity or entities to
whom Defendants divest the Theatre Assets.
B. ``Regal'' means Defendant Regal Cinemas Eric., a Tennessee
corporation with its headquarters in Knoxville. Tennessee, its
successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships and joint ventures, and their directors,
officers, managers, agents, and employees.
C. ``Consolidated'' means defendant Consolidated Theatres Holdings,
GP, a North Carolina Partnership, its successors and assigns, and its
subsidiaries, divisions, groups, affiliates, partnerships and joint
ventures, and their directors, officers, managers, agents, and
employees.
D. ``Landlord Consent'' means any contractual approval or consent
that the landlord or owner of one or more of the Theatre Assets, or the
property on which one or more of the Theatre Assets is situated, must
grant prior to the transfer of one of the Theatre Assets to an
Acquirer.
E. ``Theatre Assets'' means the first-run, commercial motion
picture theatre businesses operated by Regal or Consolidated, under the
following names and at the following locations:
------------------------------------------------------------------------
Theatre name Theatre address
------------------------------------------------------------------------
i. Crown Point 12......................... 9630 Monroe Road, Charlotte,
NC 28270.
ii. Raleigh Grand 16...................... 4840 Grove Barton Road,
Raleigh, NC 27613.
iii. Town Square 10....................... 2600 Timber Dr., Garner, NC
27529.
iv. Hollywood 14.......................... 1640 Hendersonville Rd,
Asheville, NC 28803.
------------------------------------------------------------------------
The term ``Theatre Assets'' includes:
1. All tangible assets that comprise the first-run, commercial
motion picture theatre business including all equipment, fixed assets
and fixtures, personal property, inventory, office furniture,
materials, supplies, and other tangible property and all assets used in
connection with the Theatre Assets: All licenses, permits and
authorizations issued by any governmental organization relating to the
Theatre Assets; all contracts, teaming arrangements, agreements,
leases, commitments, certifications, and understandings, relating to
the Theatre Assets, including supply agreements; all customer lists,
contracts, accounts, and credit records; all repair and performance
records and all other records relating to the Theatre Assets;
2. All intangible assets used in the development, production,
servicing and sale of Theatre Assets, including, but not limited to all
patents, licenses and sublicenses, intellectual property, technical
information, computer software (except Defendants' proprietary
software) and related documentation, know how, trade secrets, drawings,
blueprints, designs, design protocols, specifications for materials,
specifications for parts and devices, safety procedures for the
handling of materials and substances, quality assurance and control
procedures, design tools and simulation capability, all manuals and
technical information Defendants provide to their own employees,
customers, suppliers, agents or licensees, and all research data
concerning historic and current research and development efforts
relating to the Theatre Assets, provided, however, that this term does
not include any right to use or interests in defendants' trademarks,
trade names, service marks or service names, or copyrighted advertising
materials.
III. Applicability
A. This Final Judgment applies to Regal and Consolidated, as
defined above, and all other persons in active concert or participation
with any of them who receive actual notice of this Final Judgment by
personal service or otherwise.
B. If, prior to complying with Section IV and V of this Final
Judgment, Defendants sell or otherwise dispose of all or substantially
all of their assets or of lesser business units that include the
Theatre Assets, they shall require the purchaser to be bound by the
provisions of this Final Judgment Defendants need not obtain such an
agreement from the acquirers of the assets divested pursuant to this
Final Judgment.
IV. Divestitures
A. Defendants are ordered and directed, within ninety (90) calendar
days after the filing of the Complaint in this matter, or five (5)
calendar days after notice of the entry of this Final Judgment by the
Court, whichever is later, to divest the Theatre Assets in a manner
consistent with this Final Judgment to an Acquirer(s) acceptable to the
United States in its sole discretion. The United States, in its sole
discretion, may agree to one or more extensions of this time period not
to exceed ninety (90) calendar days in total, and shall notify the
Court in such circumstances. Defendants agree to use their best efforts
to divest the Theatre Assets as expeditiously as possible.
B. In accomplishing the divestitures ordered by this Final
Judgment, Defendants promptly shall make known, by usual and customary
means, the availability of the Theatre Assets. Defendants shall inform
any person making inquiry regarding a possible purchase of the Theatre
Assets that they are being divested pursuant to this Final Judgment and
provide that person with a copy of this Final Judgment. Defendants
shall offer to furnish to all prospective Acquirers, subject to
customary confidentiality assurances, all information and documents
relating to the Theatre Assets customarily provided in a due diligence
process except such information or documents subject to the attorney-
client privilege or work-product doctrine. Defendants shall make
available such information to the United States at the same time that
such information is made available to any other person.
C. Defendants shall provide the Acquirers and the United States
information relating to the personnel involved in the operation of the
Theatre Assets to enable the Acquirers to make offers of employment.
Defendants will not interfere with any negotiations by the Acquirers to
employ any Defendant employee whose primary responsibility is the
operation of the Theatre Assets.
D. Defendants shall permit prospective Acquirers of the Theatre
Assets to have reasonable access to personnel and to make inspections
of
[[Page 28159]]
the physical facilities of the Theatre Assets; access to any and all
environmental, zoning, and other permit documents and information; and
access to any and all financial, operational, or other documents and
information customarily provided as part of a due diligence process.
E. Defendants shall warrant to all Acquirers of the Theatre Assets
that each asset will be operational on the date of sale.
F. Defendants shall not take any action that will impede in any way
the permitting, operation. or divestitures of the Theatre Assets. At
the option of the Acquirers, Defendants shall enter into an agreement
for products and services, such as computer support services, that are
reasonably necessary for the Acquirer(s) to effectively operate the
Theatre Assets during a transition period. The terms and conditions of
any contractual arrangements meant to satisfy this provision must be
commercially reasonable for those products and services for which the
agreement is entered and shall remain in effect for no more than three
months, absent approval of the United States, in its sole discretion.
G. Defendants shall warrant to the Acquirers that there are no
material defects in the environmental, zoning or other permits
pertaining to the operation of each asset, and that following the sale
of the Theatre Assets, Defendants will not undertake, directly or
indirectly, any challenges to the environmental, zoning, or other
permits relating to the operation of the Theatre Assets.
H. Unless the United States otherwise consents in writing, the
divestitures made pursuant to Section IV, or by trustee appointed
pursuant to Section V. of this Final Judgment, shall include the entire
Theatre Assets, and shall be accomplished in such a way as to satisfy
the United States, in its sole discretion that the Theatre Assets can
and will be used by the Acquirers as part of a viable, ongoing business
of first-run, commercial motion picture theatres. Divestitures of the
Theatre Assets may be made to one or more Acquirers, provided that in
each instance it is demonstrated to the sole satisfaction of the United
States that the Theatre Assets will remain viable and the divestitures
of such assets will remedy the competitive harm alleged in the
Complaint. The divestitures, whether pursuant to Section IV or Section
V of this Final Judgment,
(1) Shall be made to an Acquirer(s) that, in the United States's
sole judgment, has the intent and capability (including the necessary
managerial, operational, technical and financial capability) of
competing effectively in the business of first-run, commercial motion
picture theatres; and
(2) shall be accomplished so as to satisfy the United States, in
its sole discretion, that none of the terms of any agreement between an
Acquirer(s) and Defendants give Defendants the ability unreasonably to
raise the Acquirer's costs, to lower the Acquirer's efficiency, or
otherwise to interfere in the ability of the Acquirer(s) to compete
effectively.
V. Appointment of Trustee
A. If Defendants have not divested the Theatre Assets within the
time period specified in Section IV(A), Defendants shall notify the
United States of that fact in writing. Upon application of the United
States, the Court shall appoint a trustee selected by the United States
and approved by the Court to effect the divestitures of the Theatre
Assets.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Theatre Assets. The trustee
shall have the power and authority to accomplish the divestitures to an
Acquirer(s) acceptable to the United States at such price and on such
terms as are then obtainable upon reasonable effort by the trustee,
subject to the provisions of Sections IV, V, VI, and VII of this Final
Judgment, and shall have such other powers as this Court deems
appropriate. Subject to Section V(D) of this Final Judgment, the
trustee may hire at the cost and expense of Defendants any investment
bankers, attorneys, or other agents, who shall be solely accountable to
the trustee, reasonably necessary in the trustee's judgment to assist
in the divestiture.
C. Defendants shall not object to a sale by the trustee on any
ground other than the trustee's malfeasance. Any such objections by
Defendants must be conveyed in writing to the United States and the
trustee within ten (10) calendar days after the trustee has provided
the notice required under Section VII.
D. The trustee shall serve at the cost and expense of Defendants,
on such terms and conditions as the United States approves, and shall
account for all monies derived from the sale of the assets sold by the
trustee and all costs and expenses so incurred. After approval by the
Court of the trustee's accounting, including fees for its services and
those of any professionals and agents retained by the trustee, all
remaining money shall be paid to Defendants and the trust shall then be
terminated. The compensation of the trustee and any professionals and
agents retained by the trustee shall be reasonable in light of the
value of the Theatre Assets and based on a fee arrangement providing
the trustee with an incentive based on the price and terms of the
divestitures and the speed with which it is accomplished, but
timeliness is paramount.
E. Defendants shall use their best efforts to assist the trustee in
accomplishing the required divestitures. The trustee and any
consultants, accountants, attorneys, and other persons retained by the
trustee shall have full and complete access to the personnel, books,
records, and facilities of the business to be divested, and Defendants
shall develop financial and other information relevant to such business
as the trustee may reasonably request, subject to reasonable protection
for trade secret or other confidential research, development, or
commercial information. Defendants shall take no action to interfere
with or to impede the trustee's accomplishment of the divestitures.
F. After its appointment, the trustee shall file monthly reports
with the United States and the Court setting forth the trustee's
efforts to accomplish the divestitures ordered under this Final
Judgment. To the extent such reports contain information that the
trustee deems confidential, such reports shall not be filed in the
public docket of the Court. Such reports shall include the name,
address, and telephone number of each person who, during the preceding
month, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any interest in the Theatre Assets, and shall
describe in detail each contact with any such person. The trustee shall
maintain full records of all efforts made to divest the Theatre Assets.
G. If the trustee has not accomplished the divestitures ordered
under this Final Judgment within six months after its appointment, the
trustee shall promptly file with the Court a report setting forth (1)
the trustee's efforts to accomplish the required divestitures, (2) the
reasons, in the trustee's judgment, why the required divestitures have
not been accomplished, and (3) the trustee's recommendations. To the
extent such reports contain information that the trustee deems
confidential, such reports shall not be filed in the public docket of
the Court. The trustee shall at the same time furnish such report to
the United States which shall have the right to make additional
recommendations consistent with the purpose of the trust. The Court
thereafter shall enter such orders as it shall deem appropriate to
carry out the purpose of the Final
[[Page 28160]]
Judgment, which may, if necessary, include extending the trust and the
term of the trustee's appointment by a period requested by the United
States.
VI. Landlord Consent
A. If Defendants are unable to effect the divestitures required
herein due to the inability to obtain the Landlord Consent for any of
the Theatre Assets, Defendants shall divest alternative Theatre Assets
that compete effectively with the theatre for which the Landlord
Consent was not obtained. The United States shall, in its sole
discretion, determine whether such theatre competes effectively with
the theatre for which landlord consent was not obtained.
B. Within five (5) business days following a determination that
Landlord Consent cannot be obtained for one of the Theatre Assets,
Defendants shall notify the United States and propose an alternative
divestiture pursuant to Section VI(A). The United States shall have
then ten (10) business days in which to determine whether such theatre
is a suitable alternative pursuant to Section VI(A). If the Defendants'
selection is deemed not to be a suitable alternative, the United States
shall in its sole discretion select the theatre to be divested.
C. If the trustee is responsible for effecting the divestitures, it
shall notify both the United States and the Defendants within five (5)
business days following a determination that Landlord Consent can not
be obtained for one of the Theatre Assets. Defendants shall thereafter
have five (5) business days to propose an alternative divestiture
pursuant to Section VI(a). The United States shall have then ten (10)
business days in which to determine whether such theatre is a suitable
alternative pursuant to Section VI(A). If the Defendants' selection is
deemed not to be a suitable competitive alternative, the United States
shall in its sole discretion select the theatre to be divested.
VII. Notice of Proposed Divestitures
A. Within two (2) business days following execution of a definitive
divestiture agreement, Defendants or the trustee, whichever is then
responsible for effecting the divestitures required herein, shall
notify the United States of any proposed divestitures required by
Sections IV or V of this Final Judgment. If the trustee is responsible,
it shall similarly notify Defendants. The notice shall set forth the
details of the proposed divestitures and list the name, address, and
telephone number of each person not previously identified who offered
or expressed an interest in or desire to acquire any ownership interest
in the Theatre Assets, together with full details of the same.
B. Within fifteen (15) calendar days of receipt by the United
States of such notice, the United States may request from Defendants,
the proposed Acquirer(s), any other third party, or the trustee, if
applicable, additional information concerning the proposed
divestitures, the proposed Acquirer(s), and any other potential
Acquirer. Defendants and the trustee shall furnish any additional
information requested within fifteen (15) calendar days of the receipt
of the request, unless the parties shall otherwise agree.
C. Within thirty (30) calendar days after receipt of the notice or
within twenty (20) calendar days after the United States has been
provided the additional information requested from Defendants, the
proposed Acquirer(s), any third party, and the trustee, whichever is
later, the United States shall provide written notice to Defendants and
the trustee, if there is one, stating whether or not it objects to the
proposed divestitures. If the United States provides written notice
that it does not object, the divestitures may be consummated, subject
only to Defendants' limited right to object to the sale under Section
V(C) of this Final Judgment. Absent written notice that the United
States does not object to the proposed Acquirer(s) or upon objection by
the United States, a divestiture proposed under Section IV or Section V
shall not be consummated. Upon objection by Defendants under Section
V(C), a divestiture proposed under Section V shall not be consummated
unless approved by the Court.
VIII. Financing
Defendants shall not finance all or any part of any purchase made
pursuant to Section IV or V of this Final Judgment.
IX. Hold Separate
Until the divestitures required by this Final Judgment have been
accomplished, Defendants shall take all steps necessary to comply with
the Hold Separate Stipulation and Order entered by this Court.
Defendants shall take no action that would jeopardize the divestitures
ordered by this Court.
X. Affidavits
A. Within twenty (20) calendar days of the filing of the Complaint
in this matter, and every thirty (30) calendar days thereafter until
the divestitures have been completed under Sections IV or V, Defendants
shall deliver to the United States an affidavit as to the fact and
manner of its compliance with Section IV or V of this Final Judgment.
Each such affidavit shall include the name, address, and telephone
number of each person who, during the preceding thirty (30) calendar
days, made an offer to acquire, expressed an interest in acquiring,
entered into negotiations to acquire, or was contacted or made an
inquiry about acquiring, any interest in the Theatre Assets, and shall
describe in detail each contact with any such person during that
period. Each such affidavit shall also include a description of the
efforts Defendants have taken to solicit buyers for the Theatre Assets,
and to provide required information to prospective purchasers,
including the limitations, if any, on such information. Assuming the
information set forth in the affidavit is true and complete, any
objection by the United States to information provided by defendants,
including limitation on information, shall be made within fourteen (14)
calendar days of receipt of such affidavit.
B. Within twenty (20) calendar days of the filing of the Complaint
in this matter, defendants shall deliver to the United States an
affidavit that describes in reasonable detail all actions defendants
have taken and all steps defendants have implemented on an ongoing
basis to comply with Section IX of this Final Judgment. Defendants
shall deliver to the United States an affidavit describing any changes
to the efforts and actions outlined in defendants' earlier affidavits
filed pursuant to this section within fifteen (15) calendar days after
the change is implemented.
C. Defendants shall keep all records of all efforts made to
preserve and divest the Theatre Assets until one year after such
divestitures have been completed.
XI. Compliance Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time duly authorized representatives of the United States
Department of Justice, including consultants and other persons retained
by the United States, shall, upon written request of an authorized
representative of the Assistant Attorney General in charge of the
Antitrust Division, and on reasonable notice to defendants, be
permitted:
(1) Access during defendants' office hours to inspect and copy, or
at the option of the United States, to require defendants to provide
hard copy or electronic copies of all books, ledgers, accounts,
records, data, and documents
[[Page 28161]]
in the possession, custody, or control of defendants, relating to any
matters contained in this Final Judgment; and
(2) to interview, either informally or on the record defendants'
officers, employees, or agents, who may have their individual counsel
present, regarding such matters. The interviews shall be subject to the
reasonable convenience of the interviewee and without restraint or
interference by defendants.
B. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
defendants shall submit written reports or response to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States, to any person
other than an authorized representative of the executive branch of the
United States, except in the course of legal proceedings to which the
United States is a party (including grand jury proceedings), or for the
purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
D. If at the time information or documents are furnished by
defendants to the United States, defendants represent and identify in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(7) of the Federal
Rules of Civil Procedure, and defendants mark each pertinent page of
such material, ``Subject to claim of protection under Rule 26(c)(7) of
the Federal Rules of Civil Procedure,'' then the United States shall
give defendants ten (10) calendar days notice prior to divulging such
material in any legal proceeding (other than a grand jury proceeding).
XII. Notification
Unless such transaction is otherwise subject to the reporting and
waiting period requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, 15 U.S.C. 18a (the ``HSR Act''),
defendants, without providing advance notification to the Department of
Justice, shall not directly or indirectly acquire any assets of or any
interest, including any financial, security, loan, equity or management
interest, in the business of first-run, commercial theatres in
Mecklenburg County, North Carolina; Wake County, North Carolina; and
Buncombe County, North Carolina during a ten-year period. This
notification requirement shall apply only to the acquisition of any
assets or any interest in the business of first-run, commercial motion
picture theatres at the time of the acquisition and shall not be
construed to require notification of acquisition of interest in new
theatre developments or of assets not being operated as first-run
commercial motion picture theatre businesses, provided, that this
notification requirement shall apply to first-run, commercial theatres
under construction at the time of the entering of this Final Judgment.
Such notification shall be provided to the Department of Justice in
the same format as, and per the instructions relating to the
Notification and Report Form set forth in the Appendix to Part 803 of
Title 16 of the Code of Federal Regulations as amended, except that the
information requested iii Items 5 through 9 of the instructions must be
provided only about first-run, commercial theatres. Notification shall
be provided at least thirty (30) calendar days prior to acquiring any
such interest, and shall include, beyond what may be required by the
applicable instructions, the names of the principal representatives of
the parties to the agreement who negotiated the agreement, and any
management or strategic plans discussing the proposed transaction. If
within the 30-day period after notification, representatives of the
Antitrust Division make a written request for additional information,
defendants shall not consummate the proposed transaction or agreement
until thirty (30) days after submitting all such additional
information. Early termination of the waiting periods in this paragraph
may be requested and, where appropriate, granted in the same manner as
is applicable under the requirements and provisions of the HSR Act and
rules promulgated thereunder. This Section shall be broadly construed
and any ambiguity or uncertainty regarding the filing of notice under
this Section shall be resolved in favor of filing notice.
XIII. No Reacquisition
Defendants may not reacquire any part of the theatre assets
divested under this Final Judgment during the term of this Final
Judgment.
XIV. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XV. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten years from the date of its entry.
XVI. Public Interest Determination
Entry of this Final Judgment is in the public interest. The parties
have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16, including making copies available to the
public of this Final Judgment, the Competitive Impact Statement, and
any comments thereon and the United States's responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and response to comments filed with
the Court, entry of this Final Judgment is in the public interest.
Date:
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. 16.
United States District Judge.
United States District Court for the District of Columbia
United States of America, Plaintiff, v. Regal Cinemas, Inc., and
Consolidated Theatres Holdings, GP, Defendants.
Civil Action No: 1:08-cv-00746.
Judge: Leon, Richard J.
Filed: April 30, 2008.
Competitive Impact Statement
Plaintiff, the United States of America (``United States''),
pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act
(``APPA'' or ``Tunney Act''), 15 U.S.C. 16(b)-(h), files this
Competitive Impact Statement relating to the proposed Final Judgment
submitted for entry in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On January 14, 2008, Defendant Regal Cinemas, Inc. (``Regal'')
agreed to acquire Defendant Consolidated Theatres Holdings, GP
(``Consolidated'') for approximately $210 million. The United States
filed a civil antitrust complaint on April 29, 2008, seeking to enjoin
the proposed acquisition and to obtain equitable relief. The Complaint
alleges that the acquisition, if permitted to proceed, would combine
the two leading, and in some cases, only operators of first-run,
commercial movie theatres in parts of the metropolitan areas of
Charlotte, Raleigh, and Asheville, North Carolina The likely effect of
this acquisition would be to lessen competition substantially for
first-run commercial motion picture
[[Page 28162]]
exhibition in violation of Section 7 of the Clayton Act, 15 U.S.C. 18.
At the same time the Complaint was filed, the United States also
filed a Hold Separate Stipulation and Order (``Hold Separate'') and
proposed Final Judgment, which are designed to eliminate the
anticompetitive effects of the acquisition. Under the proposed Final
Judgment, which is explained more fully below, Regal and Consolidated
are required to divest four theatres located in Charlotte, Raleigh and
Asheville to acquirers acceptable to the United States.
Under the terms of the Hold Separate, Defendants will take certain
steps to ensure that four theatres to be divested will be maintained
and operated as economically viable and ongoing business concerns.
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the proposed Final Judgment would terminate this action, except that
the Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations
thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. The Defendants and the Proposed Transaction
Regal, a Tennessee corporation, is currently the nation's largest
movie theatre operator. Regal operates more than 6,400 screens at
approximately 540 theatres in 39 states and the District of Columbia
under the Regal, United Artists, Edwards, and Hoyts names, with
revenues of approximately $2.6 billion in 2007.
Consolidated, a North Carolina partnership, operates 400 screens at
28 theatres in Georgia, Maryland, North Carolina, South Carolina,
Tennessee, and Virginia, with additional theatres projected to open in
the next few years, including the Biltmore Grande 15 in Asheville,
which will open about August 2008. For fiscal year 2007, Consolidated
generated revenues of approximately $144 million.
On January 14, 2008, Regal and Consolidated signed a purchase and
sale agreement. The deal is structured as an asset purchase, with Regal
acquiring Consolidated for approximately $210 million.
B. The Competitive Effects of the Transaction on the Exhibition of
First-Run, Commercial Movies
The Complaint alleges that the theatrical exhibition of first-run,
commercial films in each of Southern Charlotte, Northern and Southern
Raleigh, and Asheville, North Carolina constitutes a line of commerce
and a relevant market for antitrust purposes.
1. The Relevant Product and Geographic Markets
The Complaint alleges that the relevant product market within which
to assess the competitive effects of this merger is the exhibition of
first-run, commercial movies. According to the Complaint, the
experience of viewing a film in a theatre is an inherently different
experience from other forms of entertainment, such as a live show, a
sporting event, or viewing a movie in the home (e.g., on a DVD or via
pay-per-view). Reflecting the significant differences of viewing a
movie in a theatre, ticket prices for movies are generally very
different from prices for other forms of entertainment: Live
entertainment is typically significantly more expensive than a movie
ticket, whereas renting a DVD for home viewing is usually significantly
cheaper than viewing a movie in a theatre. The Complaint also alleges
that a small but significant post-acquisition increase in ticket
prices, or reduction in discounts, for first-run commercial movies
would not cause a sufficient number of customers to shift to other
forms of entertainment to make such a price increase unprofitable.
The Complaint alleges that moviegoers generally do not regard sub-
run movies, art movies, or foreign language movies as an adequate
substitute for first-run movies and would not switch to sub-run movies,
art movies, or foreign language movies if the price of viewing first-
run movies was increased by a small but significant amount. Although
sub-run, art and foreign language movies appeal to some viewers of
commercial movies, potential audience and demand conditions are quite
distinct. Exhibitors consider sub-run, art, and foreign language
theatre operations as distinct from the operations of theatres that
exhibit commercial movies. A small but significant post-acquisition
increase in ticket prices, or reduction in discounts, for first-run
commercial movies would not cause a sufficient number of customers to
switch to theatres exhibiting sub-run, art, or foreign language movies
to make such a price increase unprofitable. The Complaint alleges that
the relevant geographic markets in which to measure the competitive
effects of this merger are the parts of metropolitan areas identified
as Southern Charlotte, Northern Raleigh, Southern Raleigh and
Asheville. According to the Complaint, the Southern Charlotte area
encompasses Consolidated's Philips Place 10 theatre, Consolidated's
Arboretum 12, Regal's Crown Point 12 and Regal's Stonecrest 22 theatre.
In this area, the only other theatres showing first-run, commercial
movies are an independent five-plex stadium theatre and the AMC
Carolina Pavilion 22, a stadium theatre.
The Northern Raleigh area encompasses Regal's Brier Creek 14,
Regal's North Hills 14, and Consolidated's Raleigh Grand. The only
other theatres showing first-run, commercial movies in the Northern
Raleigh area are the sloped-floor, six screen Six Forks and the 15-
screen Carmike theatre with stadium seating.
The Southern Raleigh area consists of the suburb of Garner to the
south of Raleigh and encompasses Regal's Garner Towne Square 10 and
Consolidated's White Oak 14. There are no other theatres showing first-
run, commercial movies in Southern Raleigh.
The Asheville area encompasses Regal's Hollywood 14 and the
developing site of Consolidated's Biltmore Grande 15, which is
scheduled to open in August of 2008. There are only two other non-Regal
theatres showing first-run, commercial movies in Asheville--a Carmike
theatre with 10 screens and a Fine Arts theatre with two screens.
According to the Complaint, moviegoers who reside in each of these
areas are reluctant to travel significant distances out of that area to
attend a movie except in unusual circumstances and would not do so in
sufficient numbers to make a small but significant price increase
unprofitable. As a consequence, each of these areas is a relevant
geographic market in which to assess the competitive effects of the
merger.
2. Competitive Effects in the Relevant Markets
The Complaint alleges that companies that operate first-run,
commercial movie theatres (known as exhibitors) compete on multiple
dimensions. They compete over the quality of the viewing experience.
They compete to offer the most sophisticated sound systems, best
picture clarity, nicest seats with best views, and cleanest floors and
lobbies for moviegoers. Exhibitors also seek to license the first-run
movies that are likely to attract the largest numbers of moviegoers.
Exhibitors also compete on price,\1\ knowing that if they charge too
[[Page 28163]]
much (or do not offer sufficient discounted tickets for matinees,
seniors, children, etc.), moviegoers will choose to view movies at
rival theatres.
---------------------------------------------------------------------------
\1\ An example of such price competition occurred in 2006 in
Southern Raleigh when Consolidated opened the White Oak 14, a
stadium theatre. Regal's Towne Square theatre in Southern Raleigh is
an older sloped-floor theatre located approximately five miles away.
After the White Oak 14 opened, the Towne Square theatre decreased
its adult admission price substantially.
---------------------------------------------------------------------------
According to the Complaint, the proposed merger is likely to lead
to higher ticket prices for moviegoers in each of the relevant markets.
The merger would also reduce the newly merged entity's incentives to
maintain, upgrade, and renovate its theatres in the relevant markets,
to improve its theatres' amenities and services, and to license the
highest revenues movies, thus reducing the quality of the viewing
experience. The Complaint alleges these outcomes are likely because, in
each of the relevant markets, Regal and Consolidated are each other's
most significant competitor, given their close proximity to one another
and to moviegoers.
In Southern Charlotte, the proposed merger would give the newly
merged entity control of four of the six first-run, commercial theatres
in that area, with 56 out of 83 total screens and a 75% share of 2007
box office revenues, which totaled approximately $17.1 million. Using a
measure of market concentration called the Herfmdahl-Hirschman Index
(``HHI''), explained in Appendix A, the merger would yield a post-
merger HHI of approximately 6058, representing an increase of roughly
2535 points.
In Northern Raleigh, the proposed merger would give the newly
merged entity control of three of the five first-run, commercial
theatres in that area, with 44 of 65 total screens and 79% of 2007 box
office revenues, which totaled approximately $11.6 million. The merger
would yield a post-merger HHI of roughly 6523, representing an increase
of around 2315 points.
In Southern Raleigh, the proposed merger would give the newly
merged entity control of the only two theatres in this area. Therefore,
the market share of the combined entity would be 100% of screens and
100% of 2007 box office revenues, which totaled $3.5 million. The
merger would yield the highest post-merger HHI number possible, 10,000,
representing an increase of 3167 points.
In Asheville, after the completion of the Biltmore Grand 15, the
proposed merger would give the newly merged entity control of four of
the six first-run, commercial theatres with 41 of 53 total screens. As
measured by total screens only (since Consolidated does not yet have
box office revenues in Asheville), the combined entity would have a
market share of approximately 77% in Asheville. The merger would yield
a post-merger HHI of roughly 6,355, representing an increase of 2,777
points.
In each of these markets today, were Regal or Consolidated to
increase ticket prices and the other were not to follow, the exhibitor
that increased price would likely suffer financially as a substantial
number of its patrons would patronize the other exhibitor's theatre.
After the merger, the newly combined entity would re-capture such
losses, making price increases profitable that would have been
unprofitable pre-merger. Likewise, the proposed merger would also
eliminate competition between Regal and Consolidated over the quality
of the viewing experience at their theatres in each of the geographic
markets at issue.
The Complaint explains that the presence of the other theatres
offering first-run, commercial movies in certain of the relevant
geographic markets would be insufficient to replace the competition
lost due to the merger, and thus render unprofitable post-merger
increases in ticket prices or decreases in quality by the newly merged
entity. For various reasons, the other theatres in the relevant
geographic markets offer less attractive options for the moviegoers
that are served by the Regal and Consolidated theatres. For example,
they are located further away from these moviegoers than are the Regal
and Consolidated theatres, they are a relatively smaller size or have
fewer screens than the Regal and Consolidated theatres, or they offer a
lower quality a viewing experience than do the Regal and Consolidated
theatres.
Finally, the Complaint alleges that the entry of a first-run,
commercial movie theatre in response to an increase in movie ticket
prices or a decline in theatre quality is unlikely in all of the
relevant markets. Exhibitors are reluctant to locate new theatres near
existing theatres unless the population density and demographics makes
new entry viable or the existing theatres do not have stadium seating.
That is not the case in any of the relevant markets. Over the next two
years, the demand for more movie theatres in the areas at issue is not
likely to support entry of a new theatre. And all of these markets have
or will soon have theatres with stadium seating.
For all of these reasons, the United States has concluded that the
proposed transaction would lessen competition substantially in the
exhibition of first-run, commercial films in Southern Charlotte,
Northern and Southern Raleigh, and Asheville, eliminate actual and
potential competition between Regal and Consolidated, and likely result
in increased ticket prices and lower quality theatres in those markets.
The proposed merger therefore violates of Section 7 of the Clayton Act.
III. Explanation of the Proposed Final Judgment
The divestiture requirement of the proposed Final Judgment will
eliminate the anticompetitive effects of the acquisitions in Southern
Charlotte, Northern and Southern Raleigh, and Asheville by establishing
new, independent, and economically viable competitors. The proposed
Final Judgment requires Regal and Consolidated, within ninety (90)
calendar days after the filing of the Complaint, or five (5) days after
the notice of the entry of the Final Judgment by the court, whichever
is later, to divest, as viable ongoing businesses, a total of four
theatres in three metropolitan areas: Crown Point 12 (Southern
Charlotte); the Raleigh Grand 16 (Northern Raleigh); Town Square 10
(Southern Raleigh); and Hollywood 14 (Asheville). Sale of these
theatres will thus preserve existing competition between the
defendants' theatres that are or would have been each others' most
significant competitor in the theatrical exhibition of first-run films
in Southern Charlotte, Northern and Southern Raleigh, and Asheville.
The assets must be divested in such a way as to satisfy the United
States in its sole discretion that the theatres can and will be
operated by the purchaser as viable, ongoing businesses that can
compete effectively as first-run commercial theatres. Defendants must
use their best efforts to accomplish the divestiture quickly and shall
cooperate with prospective purchasers. Until the divestitures take
place, Regal and Consolidated must maintain the sales and marketing of
the theatres, and maintain the theatres in operable condition at
current capacity configurations. Until the divestitures take place,
Regal and Consolidated must not transfer or reassign to other areas
within the company their employees with primary responsibility for the
operation of the Theatre Assets, except for transfer bids initiated by
employees pursuant to Defendants' regular, established job posting
policy.
In the event that Defendants do not accomplish the divestitures
within the periods prescribed in the proposed Final Judgment, the Final
Judgment provides that the Court will appoint a trustee selected by the
United States to effect the divestitures. If a trustee is
[[Page 28164]]
appointed, the proposed Final Judgment provides that Regal and
Consolidated will pay all costs and expenses of the trustee. The
trustee's commission will be structured so as to provide an incentive
for the trustee based on the price obtained and the speed with which
the divestitures are accomplished. After his or her appointment becomes
effective, the trustee will file monthly reports with the Court and the
United States, setting forth his or her efforts to accomplish the
divestiture. At the end of six (6) months, if the divestitures have not
been accomplished, the trustee and the United States will make
recommendations to the Court, which shall enter such orders as
appropriate, in order to carry out the purpose of the trust, including
extending the trust or the term of the trustee's appointment.
If Defendants or trustee are not able to obtain a landlord's
consent to sell one of the theatres to be divested, Section VI of the
proposed Final Judgment permits Defendants to propose an alternative
theatre to be divested. The United States shall determine whether the
theatre offered competes effectively with the theatre that could not be
divested due to a failure to obtain landlord consent. This provision
will insure that any failure by Defendants to obtain landlord consent
by Defendants does not thwart the relief obtained in the proposed Final
Judgment.
The proposed Final Judgment also prohibits Defendants from
acquiring any other theatres in Mecklenburg County, North Carolina;
Wake County, North Carolina; and Buncombe County, North Carolina
without providing at least thirty (30) days notice to the United States
Department of Justice. Such acquisitions could raise competitive
concerns but might be too small to be reported under the Hart-Scott-
Rodino (``HSR'') premerger notification statute.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorney's fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
16(a), the proposed Final Judgment has no prima facie effect in any
subsequent private lawsuit that may be brought against Defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement in the Federal Register, or the last date of
publication in a newspaper of the summary of this Competitive Impact
Statement, whichever is later. All comments received during this period
will be considered by the United States Department of Justice, which
remains free to withdraw its consent to the proposed Final Judgment at
any time prior to the Court's entry of judgment. The comments and the
response of the United States will be filed with the Court and
published in the Federal Register.
Written comments should be submitted to: John R. Read, Chief,
Antitrust Division/Litigation III, United States Department of Justice,
450 5th Street, NW., Suite 4000, Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against Defendants. The
United States could have continued the litigation and sought
preliminary and permanent injunctions against Regal's merger with
Consolidated. The United States is satisfied, however, that the
divestiture of assets and other relief described in the proposed Final
Judgment will preserve competition for the exhibition of first-run,
commercial films in the relevant markets identified by the United
States. Thus, the proposed Final Judgment would achieve all or
substantially all of the relief the United States would have obtained
through litigation, but avoids the time, expense, and uncertainty of a
full trial on the merits of the Complaint.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a sixty-day comment period, after which the court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. 16(e)(1). In making that determination,
the court, in accordance with the statute as amended in 2004, is
required to consider:
(A) The competitive impact of such judgment, including termination
of alleged violations, provisions for enforcement and modification,
duration of relief sought, anticipated effects of alternative remedies
actually considered, whether its terms are ambiguous, and any other
competitive considerations bearing upon the adequacy of such judgment
that the court deems necessary to a determination of whether the
consent judgment is in the public interest; and
(B) The impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and individuals
alleging specific injury from the violations set forth in the complaint
including consideration of the public benefit, if any, to be derived
from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A) & (B). In considering these statutory
factors, the court's inquiry is necessarily a limited one as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.'' United States v.
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see generally
United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.C. 2007)
(assessing public interest standard under the Tunney Act).\2\
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\2\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Commc'ns,
489 F. Supp. 2d at 11 (concluding that the 2004 amendments
``effected minimal changes'' to Tunney Act review.
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As the United States Court of Appeals for the District of Columbia
Circuit has held, under the APPA a court considers, among other things,
the relationship between the remedy secured and the specific
allegations set forth in the
[[Page 28165]]
government's complaint, whether the decree is sufficiently clear,
whether enforcement mechanisms are sufficient, and whether the decree
may positively harm third parties. See Microsoft, 56 F.3d at 145862.
With respect to the adequacy of the relief secured by the decree, a
court may not ``engage in an unrestricted evaluation of what relief
would best serve the public.'' United States v. BNS, Inc., 858 F.2d
456, 462 (9th Cir. 1988) (citing United States v. Bechtel Corp., 648
F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62;
United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 2001).
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Courts have held that:
[t]he balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instance, to the discretion of the Attorney General. The
court's role in protecting the public interest is one of insuring
that the government has not breached its duty to the public in
consenting to the decree. The court is required to determine not
whether a particular decree is the one that will best serve society,
but whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\3\
In determining whether a proposed settlement is in the public interest,
a district court ``must accord deference to the government's
predictions about the efficacy of its remedies, and may not require
that the remedies perfectly match the alleged violations.'' SBC
Commc'ns, 489 F. Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461
(noting the need for courts to be ``deferential to the government's
predictions as to the effect of the proposed remedies''); United States
v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003)
(noting that the court should grant due respect to the United States'
prediction as to the effect of proposed remedies, its perception of the
market structure, and its views of the nature of the case).
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\3\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the IAPPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''). See generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest''').
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Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[A] proposed decree must be approved
even if it falls short of the remedy the court would impose on its own,
as long as it falls within the range of acceptability or is `within the
reaches of public interest.' '' United States v. Am. Tel. & Tel. Co.,
552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd
sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also
United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky.
1985) (approving the consent decree even though the court would have
imposed a greater remedy). To meet this standard, the United States
``need only provide a factual basis for concluding that the settlements
are reasonably adequate remedies for the alleged harms.'' SBC Commc'ns,
489 F. Supp. 2d at 17.
Moreover, the court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Complaint, and does not authorize the court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459. Because the ``court's
authority to review the decree depends entirely on the government's
exercising its prosecutorial discretion by bringing a case in the first
place,'' it follows that ``the court is only authorized to review the
decree itself,'' and not to ``effectively redraft the complaint'' to
inquire into other matters that the United States did not pursue. Id.
at 1459-60. As this Court recently confirmed in SBC Communications,
courts ``cannot look beyond the complaint in making the public interest
determination unless the complaint is drafted so narrowly as to make a
mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
In its 2004 amendments, Congress made clear its intent to preserve
the practical benefits of utilizing consent decrees in antitrust
enforcement, adding the unambiguous instruction that ``[n]othing in
this section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to
intervene.'' 15 U.S.C. 16(e)(2). The language wrote into the statute
what Congress intended when it enacted the Tunney Act in 1974, as
Senator Tunney explained: ``[t]he court is nowhere compelled to go to
trial or to engage in extended proceedings which might have the effect
of vitiating the benefits of prompt and less costly settlement through
the consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement
of Senator Tunney). Rather, the procedure for the public interest
determination is left to the discretion of the court, with the
recognition that the court's ``scope of review remains sharply
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC
Commc'ns, 489 F. Supp. 2d at 11.\4\
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\4\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH)
section 61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of
corrupt failure of the government to discharge its duty, the Court,
in making its public interest finding, should * * * carefully
consider the explanations of the government in the competitive
impact statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93298, 93d Cong., 1st Sess., at 6
(1973) (``Where the public interest can be meaningfully evaluated
simply on the basis of briefs and oral arguments, that is the
approach that should be utilized.'').
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VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: April 30, 2008.
Respectfully submitted,
Gregg I. Malawer (DC Bar No. 481685), Jennifer A. Warnsley (DC Bar
No. 486540), Anne Newton McFadden, U.S. Department of Justice
Antitrust, Division 450 S Street, NW., Suite 4000, Washington, DC
20530, (202) 514-0230, Attorneys for Plaintiff the United States.
Exhibit A--Definition of HHI and Calculations for Market
``HHI'' means the Herfindahl-Hirschman Index, a commonly accepted
measure of market concentration. It is calculated by squaring the
market share of each firm competing in the market and then summing the
resulting numbers. For example, for a market consisting of four firms
with shares of thirty, thirty, twenty and twenty percent, the HHI is
2600 (30\2\ + 30\2\ + 20\2\ + 20\2\ = 2600). The HHI takes into account
the relative size and distribution of the firms in a market and
approaches zero when a market consists of a large number of firms of
relatively equal size. The HHI increases both as the number of firms in
the market decreases and as the disparity in size between those firms
increases.
Markets in which the HHI is between 1000 and 1800 points are
considered to be moderately concentrated, and those in which the HHI is
in excess of 1800 points are considered to be concentrated.
Transactions that increase the HHI by more than 100 points in
[[Page 28166]]
concentrated markets presumptively raise antitrust concerns under the
Merger Guidelines. See Merger Guidelines 1.51.
[FR Doc. E8-10415 Filed 5-14-08; 8:45 am]
BILLING CODE 4410-11-M