[Federal Register: July 23, 2008 (Volume 73, Number 142)]
[Notices]
[Page 42810-42813]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23jy08-52]
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FEDERAL TRADE COMMISSION
[File No. 081 0119]
Pernod Ricard S.A.; Analysis of Agreement Containing Consent
Orders to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement.
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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 August 15, 2008.
ADDRESSES: Interested parties are invited to submit written comments.
Comments should refer to ``Pernod Ricard, File No. 081 0119,'' 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-Pernod. To ensure that the Commission
considers an electronic comment, you must file it on that web-based
form.
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\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).
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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: Joseph S. Brownman, FTC Bureau of
Competition, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580, (202)
326-2605.
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 July 17, 2008), on the World Wide Web, at (http://www.ftc.gov/os/
2008/07/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 Orders to Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an Agreement Containing Consent Orders (``consent
agreement'')from Respondent Pernod Ricard S.A. (``Pernod Ricard'') in
connection with its proposed acquisition of V&S Vin & Sprit AB
(Publ)(``V&S'') from The Kingdom of Sweden. Among other things, the
consent agreement requires that Pernod Ricard, currently the
distributor of Stolichnaya Vodka, as a condition to acquiring V&S and
its Absolut Vodka brand, cease distributing Stolichnaya Vodka. Pernod
Ricard obtained the rights to distribute the Stolichnaya Vodka brand
from its owner, Spirits International BV (``SPI''), a corporation
headquartered in Geneva, Switzerland, and organized and doing business
under the laws of The Netherlands. Absolut Vodka and Stolichnaya Vodka
are ``super premium'' vodkas and, for a substantial number of
consumers, they are close price substitutes. Total annual United States
retail sales of these two brands are about $1.9 billion.
The Commission and Respondent Pernod Ricard also have agreed to
entry of an Order To Hold Separate and Maintain Assets (``Hold Separate
Order''). The Hold Separate Order requires Pernod Ricard to maintain
the competitive viability of assets relating to the distribution of
Stolichnaya Vodka during the six-month period that the consent
agreement permits it to own Absolut Vodka while also distributing
Stolichnaya. The Hold Separate Order further requires that Pernod
Ricard refrain from exercising direction or control over the
Stolichnaya Vodka distribution business. Pernod Ricard must
nevertheless maintain all Stolichnaya Vodka operations in the regular
and ordinary course in accordance with past practices. Compliance with
the terms of the Hold
[[Page 42811]]
Separate Order will be supervised by an interim monitor.
The proposed consent agreement will also remedy information
exchange concerns in four additional distilled spirits markets: Cognac,
domestic cordials, coffee liqueur, and popular gin. The Commission's
concerns in these four markets arise because of an ongoing joint
venture between V&S and Beam Global Spirits & Wine, Inc. (``Beam
Global''), a Fortune Brands, Inc., subsidiary, for the joint management
of all of their distilled spirits distribution businesses. After the
acquisition, Pernod Ricard will assume the management function role
held by V&S for the joint venture brands and have access to
competitively sensitive information about Beam Global brands which
compete with Pernod Ricard brands that are not in the joint venture.
The consent agreement requires Pernod Ricard to set up strict
procedures that limit the flow of information to its employees, both
within the joint venture as well as within Pernod Ricard itself.
Because neither party to the joint venture profits from actions by the
joint venture in connection with the sale of products, the Commission
does not believe that a structural remedy in the form of a required
divestiture of Pernod Ricard's brands that compete with the Beam Global
brands in the joint venture is necessary. Total annual United States
retail sales in the four markets combined are about $2.4 billion.
II. Respondent Pernod Ricard
Respondent Pernod Ricard is a corporation organized, existing and
doing business under and by virtue of the laws of the French Republic,
with its office and principal place of business located at 12, place
des Etats-Unis, 75783 Paris Cedex 16, France. In the United States,
Pernod Ricard operates through a wholly-owned subsidiary corporation,
Pernod Ricard USA, Inc., with offices located at 100 Manhattanville
Road, Purchase, New York 10577. Pernod Ricard's United States revenues
from all distilled spirits products in the year ending June 30, 2007,
totaled about $2.5 billion.
Pernod Ricard produces distilled spirits that it distributes,
markets, and sells in the United States. Some of its more popular brand
lines of distilled spirits are Martell Cognac, Hiram Walker Cordials,
and Kahlua Coffee Liqueur. Pernod Ricard also produces, markets,
distributes, and sells, Chivas Regal, Ballantine's, The Glenlivet
Scotches, Jameson Irish Whiskey, Beefeater Gin, and the line of Wild
Turkey Bourbons. Pernod Ricard also markets, distributes, and sells,
but does not produce or own, the line of Stolichnaya Vodkas.
III. V&S (the acquired company)
V&S is a corporation wholly-owned by The Kingdom of Sweden, and is
organized, existing and doing business under and by virtue of the laws
of The Kingdom of Sweden. Its office and principal place of business is
located at Formansvagen 19, S-100 74, Stockholm, Sweden. In the United
States, V&S operates its distilled spirits business through a wholly-
owned subsidiary, The Absolut Spirits Company, Incorporated (``ASCI'').
ASCI is a Delaware corporation with its office and principal place of
business located at 401 Park Avenue South, New York, New York 10016.
V&S produces and sells distilled spirits products from facilities that
it owns and operates. The brands of V&S include the lines of Absolut
Vodka, Level Vodka, Plymouth Gin, and Cruzan Rum. V&S's United States
revenues from all distilled spirits products in 2007 were about $800
million.
IV. The Future Brands Joint Venture
Future Brands LLC (``Future Brands'') is the joint venture
corporation of ASCI and Beam Global. Future Brands is a Delaware
corporation with its office and principal place of business located in
the offices of Fortune Brands at 300 Tower Parkway, Lincolnshire,
Illinois 60069. Future Brands distributes all of the distilled spirits
products of ASCI and Beam Global in the United States. The Future
Brands joint venture corporation was created in 2001 and under the
terms of that agreement, is scheduled to end in 2012. Future Brands had
total revenues, in 2007, of about $1.48 billion.
The brands of Beam Global include: the lines of Courvoisier Cognac;
DeKuyper Cordials; Starbucks Coffee Liqueur; Jim Beam, Knob Creek,
Bakers, Basil Hayden, and Booker's Bourbon; Laphroig and Teacher's
Scotch; and Gilbey's Gin. Beam Global and ASCI sell distilled spirits
that fall into different marketing and price point segments.
The principal economic benefit to Beam Global and ASCI of their
Future Brands joint venture is cost savings or efficiencies from the
joint marketing, selling, and distribution of their products. The
economic benefit from the actual sale of the products that are
distributed by the Future Brands joint venture are maintained by Beam
Global and ASCI, as brand owners, and not by Future Brands.
V. The Transaction
On March 30, 2008, Respondent Pernod Ricard and The Kingdom of
Sweden entered into their Share Purchase Agreement Regarding the Shares
in V&S. Under the terms of the acquisition agreement, Pernod Ricard
will acquire all of the shares of V&S for a sum equal to a combination
of euros, dollars, and interest payments totaling approximately $9
billion.
VI. The Complaint and Competitive Effects
A. The Stolichnaya - Absolut Overlap in the ``Super Premium'' Vodka
Segment
The Commission also made public a Complaint that it intends to
issue. According to that Complaint, Pernod Ricard, with Stolichnaya
Vodka, and V&S, with Absolut Vodka, are direct and significant
competitors in the super-premium vodka segment. The Complaint further
alleges that Stolichnaya Vodka and Absolut Vodka are vodka brands that
are close substitutes for a substantial number of customers of these
brands.
The proposed acquisition raises competitive concerns because it
would eliminate substantial competition between Pernod Ricard and V&S
in connection with the distribution, marketing, and sale of Stolichnaya
Vodka and Absolut Vodka. If Pernod Ricard owns Absolut Vodka while also
being the distributor of Stolichnaya Vodka, it could profitably raise
the price of either Absolut Vodka or Stolichnaya Vodka. Many consumers
who would be unwilling to pay a higher price for the brand whose price
was increased would switch to the other brand. In its Complaint, the
Commission stated it has reason to believe that the proposed
transaction would have anticompetitive effects and violate Section 7 of
the Clayton Act and Section 5 of the Federal Trade Commission Act.
B. The Pernod Ricard-Beam Global Brand Overlaps and the Future Brands
Joint Venture
The Complaint also alleges that the proposed acquisition by
Respondent Pernod Ricard of V&S may substantially lessen competition in
four additional distilled spirits markets. In these markets--Cognac,
domestic cordials, coffee liqueur, and popular gin--Pernod Ricard has
brands that compete with the Beam Global brands that are distributed by
Future Brands. Before its acquisition of V&S, Pernod Ricard had no
business relationship with Future Brands. As a marketer, seller, and
distributor of distilled spirits products similar to distilled spirits
products, marketed, sold, and distributed by Beam Global and Future
Brands, Pernod Ricard had
[[Page 42812]]
been a direct and substantial competitor of Beam Global and Future
Brands.
After its acquisition of V&S, Pernod Ricard will step into the
competitive shoes of V&S (and ASCI) and replace ASCI as a joint venture
partner of Beam Global. Pernod Ricard, as a joint venture partner, will
have access to competitively sensitive information about Beam Global
brands that compete with Pernod Ricard brands that are not in the joint
venture, as shown in the following chart:
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Market Pernod Ricard Brands Beam Global Brands
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Cognac Martell Courvoisier
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Domestic Cordials Hiram Walker DeKuyper
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Coffee Kahlua and Tia Maria Starbucks
Liqueur
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Popular Gin Seagram's Gilbey's
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Each of these markets is highly concentrated and difficult to
enter. Pernod Ricard and Beam Global are among the two largest
suppliers of these spirits in the United States. These companies have
spent significant sums of money to create and maintain distinct brand
equities.
Beam Global and Pernod Ricard, upon becoming joint venture partners
after the acquisition, will share in the management of Future Brands.
Under the terms of the joint venture agreement, Pernod Ricard will be
required to designate three of its seven member Board of Managers. This
will mean that Pernod Ricard employees, in connection with their
responsibilities as managers of Future Brands, will have access to
competitively sensitive information about all the Beam Global products
in the joint venture. These are brands with which Pernod Ricard is now,
and after the acquisition will be, in direct and substantial
competition. The Commission in its Complaint stated it has reason to
believe that if Pernod Ricard obtains competitively sensitive
information about the Beam Global brands listed in the table above, the
proposed transaction would have anticompetitive effects and would
violate Section 7 of the Clayton Act and Section 5 of the Federal Trade
Commission Act. The principal anticompetitive effect is likely to be
the ability of competitors in each of the four markets, including but
not limited to Beam Global and Pernod Ricard, to raise prices by
facilitating future potential coordinated interaction.
VII. The Consent Agreement
A. The Stolichnaya - Absolut Overlap in the ``Super Premium'' Vodka
Segment
Under the terms of the consent agreement, to remedy the competitive
concerns associated with the Stolichnaya Vodka overlap, Pernod Ricard
will not be permitted to have an ownership interest in Absolut Vodka
and also keep its rights to distribute Stolichnaya Vodka. Pernod Ricard
will therefore be required to divest its interest in distributing
Stolichnaya Vodka within six (6) months from the date it acquires V&S.
That divestiture will revert back to brand owner SPI.
In the event that Pernod Ricard fails to complete the required
divestiture within six (6) months, the Commission may appoint a
divestiture trustee to sell the Absolut Vodka assets and business to a
Commission-approved acquirer. The principal purpose of this alternative
Absolut Vodka divestiture requirement is to give Pernod Ricard
significant incentives to comply with the Stolichnaya Vodka divestiture
requirements of the consent agreement.
There is one exception to the requirement that Pernod Ricard divest
the Absolut Vodka assets and business in the event it fails to comply
with the Commission-ordered divestiture relating to Stolichnaya Vodka.
If Pernod Ricard by court order is prohibited from divesting its
distribution rights to Stolichnaya Vodka, instead of divesting the
Absolut Vodka assets, Pernod Ricard would have the option of divesting
either (a) the future anticipated income stream from its sales of
Absolut Vodka, or (b) a stipulated amount of at least 20% of the gross
sales revenue of Absolut Vodka. The reason for this exception relates
to the ongoing litigation between SPI and others regarding ownership of
the Stolichnaya trademark and related rights to sell vodka under that
label. That litigation, which upon agreement with the parties pending
their settlement discussions, has been stayed by court order. The
Commission has no view on the merits of this private litigation but is
concerned that a court possibly may require that the competitive status
quo of the distribution of Stolichnaya Vodka be maintained beyond the
six (6) month period that the consent order would allow Pernod Ricard
to own Absolut Vodka and distribute Stolichnaya Vodka. The income
stream divestiture option (or the stipulated 20% or more of gross sales
revenue) will be for the time period commencing twelve (12) months
after Pernod Ricard will have acquired V&S and continue until Pernod
Ricard divests its rights to distribute Stolichnaya Vodka. The purpose
of the income stream divestiture requirement is to remove potential
incentives on the part of Pernod Ricard to impair the marketability of
Stolichnaya Vodka, which because of its closeness to Absolut Vodka,
will benefit sales of Absolut Vodka. Because a court order preventing
Pernod Ricard from divesting its rights to distribute Stolichnaya Vodka
would not have caused willful non-compliance with the divestiture
requirements of the consent order, the purpose of the alternative
divestiture requirements of the order was to prevent interim
competitive harm, rather than incentives to divest Stolichnaya Vodka
distribution rights. The Commission believes that the sale of the
future income stream of Absolut Vodka under the circumstances of a
court order preventing Pernod Ricard from divesting Stolichnaya Vodka
distribution rights would eliminate significant incentives on the part
of Pernod Ricard from impairing the marketability of Stolichnaya Vodka
because Pernod Ricard would not benefit from any increase in the
Absolut Vodka income stream during the period of its joint ownership of
Absolut Vodka and distribution of Stolichnaya Vodka, having already
sold (at a predetermined price) the future value of all income stream
benefits.
The consent agreement also requires that Pernod Ricard undertake
certain activities to help ensure that the acquirer of the Stolichnaya
Vodka assets and distribution business will be able to continue
operations in a fully competitive manner. Those requirements include:
(a) providing key Stolichnaya Vodka business employees with financial
incentives to remain with Pernod Ricard (in order that those employees
might then be available for hire by the acquirer); (b) providing lists
of key employees to the acquirer; (c) for up to six (6) months,
providing such reasonable technical assistance and training as the
acquirer may request for the continued distribution of Stolichnaya
Vodka; and (d) for up to six (6) months, providing the kinds of back
office procedures to the acquirer that Pernod Ricard had already been
undertaking for its own purposes.
B. The Pernod Ricard - Fortune Brands Overlaps and the Future Brands
Joint Venture
Under the terms of the consent agreement, Pernod Ricard will be
prohibited from acquiring any business information of the Future Brands
joint venture. To ensure that this will not occur, Pernod Ricard has
agreed to the following firewall procedures: (a) the
[[Page 42813]]
Pernod Ricard designees to the Future Brands Board of Managers cannot
be officers or directors of Pernod Ricard; (b) Pernod shall recommend
to the Future Brands board that it implement database protocols
limiting Pernod designated board member access to information about
Beam Global brands; and (c) Pernod will allow an interim monitor to
supervise all of the firewall-related protections and requirements.
C. The Hold Separate Order
Accompanying the consent agreement is a Hold Separate Order. The
purpose of this order, the terms of which Pernod Ricard has also agreed
to undertake, is to prevent competitive harm pending the required
divestiture of the Stolichnaya distribution agreement, and to ensure
that the Stolichnaya Vodka assets required to be divested by Pernod
Ricard will remain a competitively viable business. Under the terms of
this agreement, Pernod Ricard will be required to (a) hold the
Stolichnaya Vodka business separate and apart form all other Pernod
Ricard business activities; (b) exercise no direction or control over
the Stolichnaya Vodka business; (c) maintain operations of the
Stolichnaya Vodka business, including preserving business
relationships, in accordance with past practice; and (d) provide the
Stolichnaya Vodka business with capital and other funds to operate at
current levels and maintain the competitiveness of the business. The
agreement also provides for the appointment of an interim monitor.
Among other things, the monitor will be empowered to ensure that during
the period of time that Pernod Ricard will own the Absolut Vodka line
and also distribute Stolichnaya Vodka, that the Stolichnaya Vodka
business will be separately managed from the other Pernod Ricard
businesses.
VIII. The Opportunity for Public Comment
The Consent Agreement has been placed on the public record for
thirty (30) days for receipt of comments from interested persons.
Comments received during this period will become part of the public
record. After thirty (30) days, the Commission will again review the
proposed consent agreement and the comments received, and will decide
whether it should withdraw from the consent agreement or make final the
Decision and Order.
By accepting the consent agreement 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
and facilitate public comment concerning the consent agreement. It is
not intended to constitute an official interpretation of the consent
agreement, nor is it intended to modify the terms of the orders in any
way.
By direction of the Commission.
Donald S. Clark
Secretary
[FR Doc. E8-16871 Filed 7-22-08: 8:45 am]
BILLING CODE 6750-01-S