Agrium Inc. and UAP Holding Corporation; Analysis of the Complaint and Proposed Consent Order to Aid Public Comment, 26993-26995 [E8-10461]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 73, Number 92 (Monday, May 12, 2008)]
[Notices]
[Pages 26993-26995]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-10461]


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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.

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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 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 
https://secure.commentworks.com/ftc-Agrium. 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 (https://
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 https://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