[Federal Register: May 12, 2008 (Volume 73, Number 92)]
[Notices]
[Page 26993-26995]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12my08-41]
=======================================================================
-----------------------------------------------------------------------
FEDERAL TRADE COMMISSION
[File No. 081 0073]
Agrium Inc. and UAP Holding Corporation; Analysis of the
Complaint and Proposed Consent Order to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement.
-----------------------------------------------------------------------
SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint and the terms of the consent order -- embodied in the consent
agreement -- that would settle these allegations.
DATES: Comments must be received on or before June 4, 2008
ADDRESSES: Interested parties are invited to submit written comments.
Comments should refer to ``Agrium and UAP Holding Corp., File No. 081
0073,'' to facilitate the organization of comments. A comment filed in
paper form should include this reference both in the text and on the
envelope, and should be mailed or delivered to the following address:
Federal Trade Commission/Office of the Secretary, Room 135-H, 600
Pennsylvania Avenue, N.W., Washington, D.C. 20580. Comments containing
confidential material must be filed in paper form, must be clearly
labeled ``Confidential,'' and must comply with Commission Rule 4.9(c).
16 CFR 4.9(c) (2005).\1\ The FTC is requesting that any comment filed
in paper form be sent by courier or overnight service, if possible,
because U.S. postal mail in the Washington area and at the Commission
is subject to delay due to heightened security precautions. Comments
that do not contain any nonpublic information may instead be filed in
electronic form by following the instructions on the web-based form at
http://secure.commentworks.com/ftc-Agrium. To ensure that the
Commission considers an electronic comment, you must file it on that
web-based form.
---------------------------------------------------------------------------
\1\ The comment must be accompanied by an explicit request for
confidential treatment, including the factual and legal basis for
the request, and must identify the specific portions of the comment
to be withheld from the public record. The request will be granted
or denied by the Commission's General Counsel, consistent with
applicable law and the public interest. See Commission Rule 4.9(c),
16 CFR 4.9(c).
---------------------------------------------------------------------------
The FTC Act and other laws the Commission administers permit the
collection of public comments to consider and use in this proceeding as
appropriate. All timely and responsive public comments, whether filed
in paper or electronic form, will be considered by the Commission, and
will be available to the public on the FTC website, to the extent
practicable, at www.ftc.gov. As a matter of discretion, the FTC makes
every effort to remove home contact information for individuals from
the public comments it receives before placing those comments on the
FTC website. More information, including routine uses permitted by the
Privacy Act, may be found in the FTC's privacy policy, at (http://
www.ftc.gov/ftc/privacy.shtm).
FOR FURTHER INFORMATION CONTACT: Donald R. Gordon, FTC Bureau of
Competition, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580, (202)
326-2357.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec. 2.34 of
the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given
that the above-captioned consent agreement containing a consent order
to cease and desist, having been filed with and accepted, subject to
final approval, by the Commission, has been placed on the public record
for a period of thirty (30) days. The following Analysis to Aid Public
Comment describes the terms of the consent agreement, and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for February 27, 2008), on the World Wide Web, at http://www.ftc.gov/
os/2008/05/index.htm. A paper copy can be obtained from the FTC Public
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW, Washington,
D.C. 20580, either in person or by calling (202) 326-2222.
Public comments are invited, and may be filed with the Commission
in either paper or electronic form. All comments should be filed as
prescribed in the ADDRESSES section above, and must be received on or
before the date specified in the DATES section.
Analysis of Agreement Containing Consent Order to Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted for
public comment from Agrium Inc. (``Agrium''), and UAP Holding
Corporation, (``UAP'') (collectively ``the Parties'') an Agreement
Containing Consent Orders (``the proposed consent order''). The Parties
have also reviewed a draft complaint contemplated by the Commission.
The proposed consent order is designed to remedy likely anticompetitive
effects arising from Agrium's proposed acquisition of all of the
outstanding voting stock of UAP.
II. Description of the Parties and the Proposed Acquisition
Agrium is a Calgary, Alberta-based agricultural products company, a
major producer of fertilizer in the Americas, and is the largest
operator of retail farm stores in the United States. Agrium has
[[Page 26994]]
approximately 433 retail locations in 31 states, in all areas of the
country except for a north-south band from the Northern plains to
Texas. Agrium's stores operate under the ``Crop Production Services''
brand in the East and Midwest, and under ``Western Farm Service'' in
the West. Agrium had nearly $4.2 billion in sales in 2006, of which
more than $1 billion came from its U.S. farm stores, the majority from
fertilizer sales. Agrium is a multinational fertilizer and farm
products company that develops, manufactures, and markets chemical and
agricultural products and services that it distributes to customers in
the Americas and elsewhere.
UAP is a publicly-traded U.S. company based in Colorado that
develops, manufactures, and markets a line of products and value-added
services including chemicals, fertilizer, and seed to farmers,
commercial growers, and regional dealers throughout the world. UAP is
the second-largest operator of farm stores in the U.S., measured by
sales, and its 370 retail stores operate in all 50 states--making it,
with Helena Chemical, one of only two farm store operators with a
national footprint. UAP's U.S. farm store sales in 2006 constituted
more than one-third of its $2.85 billion in total sales. UAP's retail
sales are weighted more toward pesticides, though fertilizer sales
account for about 30% of its revenue.
Agrium and UAP announced on December 3, 2007, that their respective
boards of directors had approved the sale and purchase of all
outstanding shares of UAP stock to Agrium for approximately $2.65
billion pursuant to the stock purchase agreements by and between Agrium
and UAP. As a result of the merger, Agrium will hold 100% of the voting
securities of UAP. Upon completion of the merger, UAP will become a
wholly owned subsidiary of Agrium.
III. The Draft Complaint
The draft complaint alleges that the transaction may substantially
lessen competition in the market for the retail sale of bulk
fertilizer, and in certain cases related services, by farm stores.
Retail farm stores sell mainly three classes of products: pesticides,
seed, and fertilizer. Additionally, farm stores can deliver a range of
services to meet the specific needs of particular growers. Retail farm
stores, for example, often deliver fertilizer directly to the grower,
and in many cases apply fertilizer to growers' fields, usually with the
store's equipment. The stores often provide a variety of agronomic
services to the grower in order to help maximize the efficiency of the
fields.
Farmers typically want one-stop shopping from their farm stores,
favoring a single provider who can provide all the inputs and services
they require. Although farmers sometimes visit the store, sales
representatives from the stores also call upon the farmers, and bulk
fertilizer is usually delivered to the farms in trucks or spreaders.
Bulk fertilizer is a critical product without which most
agricultural growers cannot profitably operate. Growers must have it,
must have the proper amount, and must have it exactly on time, to
produce their harvest. Fertilizer is usually applied before planting,
and then again at the same time as planting. Along with occasional
applications during the growing season, there is usually a fall
application of fertilizer. Agricultural growers have no close
substitutes for bulk fertilizer purchased through farm stores.
The relevant geographic markets within which to analyze the likely
effects of the proposed transaction are a series of small areas within
the United States, typically extending 20-30 miles from a farm store.
Transportation costs can make fertilizer prices less competitively
attractive at distances over about 25-30 miles because of high fuel
costs and the low price-to-weight ratio of bulk fertilizer.
Furthermore, application services require application equipment that
often travels slowly, and can tie up several employees and pieces of
equipment if traveling more than 20-30 miles.
The proposed merger of Agrium and UAP would impact six geographic
markets, including three in the central ``thumb'' of Michigan, two in
east/central Michigan, and one on the eastern shore of Maryland. The
draft complaint alleges that the relevant sections of the country
(i.e., the geographic markets) in which to analyze the acquisition are
the areas in or near the towns of Croswell, MI; Richmond, MI; Imlay
City, MI; Vestaburg, MI; Standish, MI; and Pocomoke/Girdletree, MD. In
each of these identified areas, Agrium and UAP own farm stores that are
well-situated among a small number of competitors in the market for the
group of growers located proximate to their stores.
The draft complaint further alleges that new entry would not
prevent or counteract the anticompetitive effects of this acquisition
in the relevant geographic markets. New farm store entry has become
highly infrequent, due to the risks involved in expending significant
sunk costs to obtain enough customers to make a new store viable in a
mature industry. Furthermore, because reliable supply and service is so
important, loyalty to existing suppliers is typically high among
growers, making it particularly difficult for a new entrant to develop
a sufficient customer base.
The draft complaint also alleges that Agrium's acquisition of all
of the outstanding voting securities of UAP, if consummated, may
substantially lessen competition in the relevant line of commerce in
the relevant markets in violation of Section 7 of the Clayton Act, as
amended, 15 U.S.C. Sec. 18, and Section 5 of the Federal Trade
Commission Act, as amended, 15 U.S.C. Sec. 45, by eliminating direct
competition between farm retail stores owned or controlled by Agrium
and farm retail stores owned and controlled by UAP; by increasing the
likelihood that Agrium will unilaterally exercise market power; and by
increasing the likelihood of, or facilitating, collusion or coordinated
interaction among the remaining farm retail store firms. Each of these
effects increases the likelihood that the prices of bulk fertilizer or
related services will increase, in the geographic markets alleged in
the complaint. Other competitors are not effective competitive
constraints to Agrium or UAP throughout each relevant trade area, due
to factors such as location, and size and scale of their operations.
IV. The Terms of the Agreement Containing Consent Orders
The Agreement Containing Consent Orders (``proposed consent
order'') will remedy the Commission's competitive concerns about the
proposed acquisition. Under the terms of the proposed consent order,
Agrium must divest five UAP farm stores and two Agrium farm stores.
UAP's farm stores that will be divested are located in Croswell, MI;
Richmond, MI; Imlay City, MI; Vestaburg, MI; and Standish, MI. Agrium's
farm stores that will be divested are located in Snow Hill, MD and
Keller, VA. An Order to Hold Separate and Maintain Assets requires that
the stores to be divested be operated independently, and appoints an
Interim Monitor to ensure that the Commission's interests are
protected.
A. Key Provisions of the Decision and Order
The proposed Orders will allow for effective divestiture of the key
assets that today allow UAP to provide an independent competitive
presence to Agrium in the relevant markets, and therefore will preserve
the market structure. Paragraph II of the Decision and Order provides
that Agrium divest itself of five UAP stores in Michigan,
[[Page 26995]]
and two Agrium stores in Maryland and Virginia within 180 days of its
acquisition of UAP, and that Agrium further comply with all provisions
of a divestiture agreement to be approved by the Commission. The
agreement also provides that the two Agrium stores located in Snow
Hill, Maryland and Keller, Virginia, be sold to a single buyer. Because
Agrium's Keller location provides the Snow Hill location with dry bulk
blended fertilizer, the Keller store must be sold to maintain the
existing market dynamic. If the Snow Hill store were sold alone, it
would be unable to sell bulk dry blended fertilizer to local farmers.
The Decision and Order defines the scope of the assets to include
the attributes of an ongoing business, such as necessary real property,
tangible personal property, inventories, contracts, records of the
business, accounts receivable permits, and intellectual property (other
than the UAP and Agrium trade names). Pursuant to Paragraph II.E. of
the proposed Decision and Order, Agrium also is required, for a period
of up to a year, provide necessary transition services to the buyer at
cost. The purpose of this provision is to allow for a relatively smooth
transition of the store operation to the acquirer. Paragraph II.F. of
the Decision and Order provides mechanisms for retention of each UAP
store's employees by the acquiring party.
Paragraph III of the proposed Decision and Order requires that the
Parties keep private, except where necessary under the agreement,
confidential business information related to the divested UAP stores.
Paragraph IV of the proposed Decision and Order requires that the
Parties provide the Commission with ``advance written notification'' of
intent to acquire any assets engaged in the sale of agricultural
products in any area affected by the proposed divestitures. Paragraph V
of the proposed Decision and Order provides for appointment of a
divestiture trustee. Paragraphs VI-VIII define reporting obligations.
B. Key Provisions of the Order to Hold Separate
The Order to Hold Separate and Maintain Assets requires the Parties
to maintain the assets to be divested as independent businesses pending
divestiture, and to maintain the viability of these businesses. The
proposed Order also provides for the appointment of an interim monitor
to oversee the UAP assets in the relevant markets. The proposed Order
incorporates the traditional provisions that allow the Interim Monitor
broad oversight of the assets, and requiring the Monitor to report to
the Commission on a regular basis. Furthermore, the proposed Order has
provisions requiring the Parties to appoint a Manager who would run the
assets on an independent basis, and requiring the Parties to give that
Manager financial incentives in the success of the assets. The Parties
will also be required to provide the held separate businesses with
necessary support, but provides that employees of the Parties will not
have access to confidential information, except to the extent necessary
to accomplish the divestitures, comply with laws or regulations, or
comply with the Orders. The Order requires that the Parties establish a
system to prevent unauthorized disclosure of such confidential
information, and, more generally, written procedures covering the
management, maintenance and independence of the held separate assets.
The Order also requires that the Parties provide the held separate
assets with the financial resources and support that the Monitor
believes are necessary to run the assets on an independent basis,
including maintenance and replacement of existing assets, and business
expansion.
V. Opportunity for Public Comment
The proposed consent order has been placed on the public record for
30 days for receipt of comments by interested persons. Comments
received during this period will become part of the public record.
After 30 days, the Commission will again review the proposed consent
order and the comments received and will decide whether it should
withdraw from the agreement or make the proposed consent order final.
By accepting the proposed consent order subject to final approval,
the Commission anticipates that the competitive problems alleged in the
complaint will be resolved. The purpose of this analysis is to invite
public comment on the proposed consent order, in order to aid the
Commission in its determination of whether to make the proposed consent
order final. This analysis is not intended to constitute an official
interpretation of the proposed consent order nor is it intended to
modify the terms of the proposed consent order in any way.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. E8-10461 Filed 5-9-08; 8:45 am]
BILLING CODE 6750-01-S