US Foods Holding Corp.; Analysis of Agreement Containing Consent Orders To Aid Public Comment, 49106-49108 [2019-20182]
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49106
Federal Register / Vol. 84, No. 181 / Wednesday, September 18, 2019 / Notices
Notice is hereby given of the
appointment of members to the FTC
Performance Review Board.
FOR FURTHER INFORMATION CONTACT:
Vicki Barber (202–326–2700), Chief
Human Capital Officer, 600
Pennsylvania Avenue NW, Washington,
DC 20580.
SUPPLEMENTARY INFORMATION:
Publication of the Performance Review
Board (PRB) membership is required by
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awards, and pay-for-performance pay
adjustments to the Chairman.
The following individuals have been
designated to serve on the Commission’s
Performance Review Board:
SUMMARY:
David Robbins, Executive Director, Chairman
Marian Bruno, Deputy Director, Bureau of
Competition
Daniel Kaufman, Deputy Director, Bureau of
Consumer Protection
Michael Vita, Deputy Director, Bureau of
Economics
James Reilly Dolan, Principal Deputy General
Counsel
By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2019–20191 Filed 9–17–19; 8:45 am]
BILLING CODE 6750–01–P
FEDERAL TRADE COMMISSION
[File No. 181 0215]
US Foods Holding Corp.; Analysis of
Agreement Containing Consent Orders
To Aid Public Comment
Federal Trade Commission.
Proposed Consent Agreement;
Request for Comment.
AGENCY:
ACTION:
The consent agreement in this
matter settles alleged violations of
federal law prohibiting unfair methods
of competition. The attached Analysis of
Agreement Containing Consent Orders
to Aid Public Comment describes both
the allegations in the complaint and the
terms of the consent orders—embodied
in the consent agreement—that would
settle these allegations.
DATES: Comments must be received on
or before October 18, 2019.
ADDRESSES: Interested parties may file
comments online or on paper, by
following the instructions in the
Request for Comment part of the
SUPPLEMENTARY INFORMATION section
below. Write: ‘‘US Foods Holding Corp.;
File No. 181 0215’’ on your comment,
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SUMMARY:
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and file your comment online at https://
www.regulations.gov by following the
instructions on the web-based form. If
you prefer to file your comment on
paper, mail your comment to the
following address: Federal Trade
Commission, Office of the Secretary,
600 Pennsylvania Avenue NW, Suite
CC–5610 (Annex D), Washington, DC
20580, or deliver your comment to the
following address: Federal Trade
Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW,
5th Floor, Suite 5610 (Annex D),
Washington, DC 20024.
FOR FURTHER INFORMATION CONTACT:
Sophia Vandergrift (202–326–2208),
Bureau of Competition, Federal Trade
Commission, 600 Pennsylvania Avenue
NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION: Pursuant
to Section 6(f) of the Federal Trade
Commission Act, 15 U.S.C. 46(f), and
FTC Rule 2.34, 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 September 11, 2019), on
the World Wide Web, at https://
www.ftc.gov/news-events/commissionactions.
You can file a comment online or on
paper. For the Commission to consider
your comment, we must receive it on or
before October 18, 2019. Write ‘‘US
Foods Holding Corp.; File No. 181
0215’’ on your comment. Your
comment—including your name and
your state—will be placed on the public
record of this proceeding, including, to
the extent practicable, on the https://
www.regulations.gov website.
Postal mail addressed to the
Commission is subject to delay due to
heightened security screening. As a
result, we encourage you to submit your
comments online through the https://
www.regulations.gov website.
If you prefer to file your comment on
paper, write ‘‘US Foods Holding Corp.;
File No. 181 0215’’ on your comment
and on the envelope, and mail your
comment to the following address:
Federal Trade Commission, Office of the
Secretary, 600 Pennsylvania Avenue
NW, Suite CC–5610 (Annex D),
Washington, DC 20580; or deliver your
comment to the following address:
PO 00000
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Federal Trade Commission, Office of the
Secretary, Constitution Center, 400 7th
Street SW, 5th Floor, Suite 5610 (Annex
D), Washington, DC 20024. If possible,
submit your paper comment to the
Commission by courier or overnight
service.
Because your comment will be placed
on the publicly accessible website at
https://www.regulations.gov, you are
solely responsible for making sure that
your comment does not include any
sensitive or confidential information. In
particular, your comment should not
include any sensitive personal
information, such as your or anyone
else’s Social Security number; date of
birth; driver’s license number or other
state identification number, or foreign
country equivalent; passport number;
financial account number; or credit or
debit card number. You are also solely
responsible for making sure that your
comment does not include any sensitive
health information, such as medical
records or other individually
identifiable health information. In
addition, your comment should not
include any ‘‘trade secret or any
commercial or financial information
which . . . is privileged or
confidential’’—as provided by Section
6(f) of the FTC Act, 15 U.S.C. 46(f), and
FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)—
including in particular competitively
sensitive information such as costs,
sales statistics, inventories, formulas,
patterns, devices, manufacturing
processes, or customer names.
Comments containing material for
which confidential treatment is
requested must be filed in paper form,
must be clearly labeled ‘‘Confidential,’’
and must comply with FTC Rule 4.9(c).
In particular, the written request for
confidential treatment that accompanies
the comment must include the factual
and legal basis for the request, and must
identify the specific portions of the
comment to be withheld from the public
record. See FTC Rule 4.9(c). Your
comment will be kept confidential only
if the General Counsel grants your
request in accordance with the law and
the public interest. Once your comment
has been posted on the public FTC
website—as legally required by FTC
Rule 4.9(b)—we cannot redact or
remove your comment from the FTC
website, unless you submit a
confidentiality request that meets the
requirements for such treatment under
FTC Rule 4.9(c), and the General
Counsel grants that request.
Visit the FTC website at https://
www.ftc.gov to read this Notice and the
news release describing it. The FTC Act
and other laws that the Commission
administers permit the collection of
E:\FR\FM\18SEN1.SGM
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Federal Register / Vol. 84, No. 181 / Wednesday, September 18, 2019 / Notices
public comments to consider and use in
this proceeding, as appropriate. The
Commission will consider all timely
and responsive public comments that it
receives on or before October 18, 2019.
For information on the Commission’s
privacy policy, including routine uses
permitted by the Privacy Act, see
https://www.ftc.gov/site-information/
privacy-policy.
Analysis of Agreement Containing
Consent Orders To Aid Public Comment
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I. Introduction
The Federal Trade Commission
(‘‘Commission’’) has accepted for public
comment, subject to final approval, an
Agreement Containing Consent Orders
(‘‘Consent Agreement’’) from US Foods
Holding Corp. (‘‘USF’’), and Services
Group of America, Inc. (‘‘SGA’’)
(collectively, ‘‘Respondents’’). The
purpose of the Consent Agreement is to
remedy the anticompetitive effects that
otherwise would result from USF’s
acquisition of SGA’s Food Group of
Companies (the ‘‘Proposed
Acquisition’’) in and around Boise,
Idaho (hereafter ‘‘Eastern Idaho’’), in
and around Bismarck, North Dakota,
(hereafter ‘‘Western North Dakota’’), in
and around Fargo, North Dakota
(hereafter ‘‘Eastern North Dakota’’), in
and around Kent, Washington (hereafter
the ‘‘Seattle Area’’), and nationwide for
multi-regional and national customers.
Among other things, the proposed
Consent Agreement requires USF to
divest certain of SGA’s distribution
centers and broadline distribution
assets, including employees and
tangible assets that are necessary to the
operation of the businesses in Eastern
Idaho, Western and Eastern North
Dakota, and the Seattle Area to
Shamrock Foods Co. (‘‘Shamrock’’),
Cash-Wa Distributing (‘‘Cash-Wa’’), and
Harbor Wholesale Foods (‘‘Harbor’’),
respectively.
The Commission and the Respondents
have also agreed to an Order to Maintain
Assets. This order requires USF and
SGA to maintain the assets that the
Consent Agreement requires divestiture
of, pending their divestiture. The
Commission’s Complaint alleges that
the Proposed Acquisition, if
consummated, would violate Section 7
of the Clayton Act, as amended, 15
U.S.C. 18, and Section 5 of the Federal
Trade Commission Act, as amended, 15
U.S.C. 45, by substantially lessening
competition in the market for broadline
foodservice distribution in Eastern
Idaho, Western North Dakota, Eastern
North Dakota, the Seattle Area, and
nationwide for multi-regional and
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national broadline distribution
customers.
The Consent Agreement has been
placed on the public record for 30 days
to solicit comments from interested
persons. Comments received during this
period will become part of the public
record. After 30 days, the Commission
will review the comments received and
decide whether it should withdraw,
modify, or finalize the Consent
Agreement.
II. The Respondents and the
Transaction
USF, headquartered in Rosemont,
Illinois, is the second-largest distributor
of food and food-related products in the
United States. USF operates 61
distribution facilities throughout the
United States, all of which provide
broadline distribution, and some of
which serve national chain customers
(providing more of a systems-type
service). In fiscal year 2017, USF
generated approximately $24 billion in
sales to over 200,000 customers
nationwide. Nearly $6 billion of those
sales were to independent (i.e., nonchain) restaurants.
Headquartered in Scottsdale, Arizona,
Services Group of America, Inc. is a
holding company made up of six
operating companies. SGA is comprised
of Food Services of America (‘‘FSA’’), a
broadline foodservice distributor
(notably, FSA is the only SGA business
unit that generates competitive
concern); Systems Services of America
(‘‘SSA’’), a systems distributor;
Amerifresh, a specialty produce
distributor; Ameristar Meats, a specialty
meat processor; and GAMPAC, a supply
chain and logistics company. In fiscal
year 2017, SGA generated
approximately $3.2 billion in sales. SGA
has nine broadline distribution centers,
three systems distribution centers, and
three specialty facilities. FSA and SSA
are members of Distribution Market
Advantage (‘‘DMA’’), a supply chain
and marketing cooperative owned by
eight independent regional foodservice
distributors who are also its members.
Through DMA, FSA is able to serve
national accounts in coordination with
other large regional distributors.
On July 28, 2018, USF entered into a
Stock Purchase Agreement with SGA.
Pursuant to the agreement, USF will
purchase all of the outstanding common
stock of SGA’s Food Group of
Companies in an all-cash acquisition
valued at $1.8 billion.
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III. Broadline Foodservice Distribution
in Eastern Idaho, Western North
Dakota, Eastern North Dakota, the
Seattle Area, and Nationwide
Broadline foodservice distribution
and broadline foodservice distribution
to national customers are the relevant
product markets in which to assess the
effects of the Proposed Acquisition.
Broadline foodservice distribution
involves the sale and distribution of a
broad range of national-brand and
private-label food and foodservicerelated products (such as paper towels,
disposable cups, etc.) to a range of
customers who serve food-away-fromhome to consumers, such as restaurants,
hospital cafeterias, stadiums, and
schools. Broadline distributors offer
customers a distinct combination of
products and services that are not
replicated by other foodservice
distribution channels, including a wide
array of stock keeping units (SKUs) to
provide customers with product breadth
and depth, a broad selection of privatelabel (i.e., distributor-branded) food
products, a frequent and flexible
delivery schedule (including next-day
delivery), and other value-added
services, such as order tracking, menu
planning, and nutritional information.
Customers value the ability to purchase
this bundle of products and services
from a single broadline distributor.
There are four local relevant
geographic markets in which to analyze
the transaction’s effects: (1) Eastern
Idaho, (2) Western North Dakota, (3)
Eastern North Dakota, and (4) the Seattle
Area. Competition to serve broadline
customers plays out locally. The
business of broadline distribution
involves regularly loading food (much
of which is perishable) and related
items onto trucks, driving to customer
locations, unloading the merchandise,
and returning to the distribution center
in time to repeat this process for the
next day’s deliveries. Customers,
therefore, select from among broadline
distributors within a reasonable radius
of their location. Likewise, broadline
distributors are limited in their
distribution radius by cost and service
considerations. USF and FSA compete
from proximate distribution centers to
serve customers in Eastern Idaho,
Western North Dakota, Eastern North
Dakota, and the Seattle Area, and these
are thus appropriate geographic
markets. FSA serves both North Dakota
markets out of its Fargo distribution
center, but other distributors serving the
Eastern North Dakota market do not
serve Western North Dakota, and thus
the competitive conditions are different
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Federal Register / Vol. 84, No. 181 / Wednesday, September 18, 2019 / Notices
and it is appropriate to define two
geographic markets within the state.
USF and FSA compete closely to
serve local broadline customers in
Eastern Idaho, Western North Dakota,
Eastern North Dakota, and the Seattle
Area. The transaction would eliminate a
key broadline distributor in each of
these markets, limiting customers’
ability to switch between distributors
and leverage them in order to obtain
more competitive pricing and better
service. The few remaining competitors
in the relevant markets would be
insufficient to alleviate competitive
concerns. As a result, the Proposed
Acquisition will likely lead to higher
prices and diminished service for local
broadline customers in the four local
markets.
The effects of the Proposed
Acquisition must also be evaluated in
the national market. Through its
membership in a consortium of regional
distributors, DMA, FSA competes with
USF for the provision of broadline
distribution services to multi-regional
and national accounts. If DMA were to
lose all of FSA’s distribution centers
from its network, it would be rendered
a significantly less attractive competitor
than it is today to many multi-regional
and national customers. As a result, the
Proposed Acquisition will likely result
in higher prices and reduced quality
and service to national customers.
New entry or expansion is unlikely to
deter or counteract the anticompetitive
effects of the acquisition in the Eastern
Idaho, Western North Dakota, Eastern
North Dakota, Seattle Area, and national
markets. The broadline foodservice
distribution industry is capital and labor
intensive, rendering entry challenging
and time consuming, with significant
operational and financial risks.
Prospective entrants or expanders face
three main obstacles: (1) Developing the
requisite sales forces and customer base;
(2) establishing a properly outfitted
distribution center, truck fleet, and
driver base for operations and delivery;
and (3) building the volume of
perishable and non-perishable SKUs
necessary to serve broadline customers.
To overcome these hurdles, a new
entrant or an adjacent company trying to
expand must commit a tremendous
amount of capital and time to develop
relationships with potential customers,
build or expand an existing facility, and
assemble the equipment required for
distribution in that area. Thus, due to
the considerable time and investment
required to build a functional broadline
distribution operation in a new market,
entry and expansion are unlikely to be
timely, or sufficient to deter or
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counteract the Proposed Acquisition’s
anticompetitive effects.
IV. The Proposed Consent Agreement
The proposed Consent Order
remedies the likely anticompetitive
effects in each of the relevant markets
by requiring divestitures to Shamrock,
Cash-Wa, and Harbor within 30 days of
the Proposed Acquisition’s closing.
Until the completion of each divestiture,
the Respondents are required to abide
by the Order to Maintain Assets, which
requires them to maintain the viability,
marketability, and competitiveness of
the divestiture assets until the
divestitures are completed. The
proposed Consent Order appoints a
Monitor to ensure the Respondents’
compliance with the Order to Maintain
Assets, Consent Order, and Divestiture
Agreements in anticipation of and
following the divestiture.
Additionally, the proposed Consent
Order requires the Respondents to
provide transitional services to the
approved acquirer for at least 24 months
after the divestiture, as needed, to assist
the acquirer with the transfer and
operation of the divested assets. Finally,
the proposed Consent Order contains
standard terms regarding the acquirer’s
access to employees, protection of
Material Confidential Information, and
compliance reporting requirements,
among other things.
A. Eastern Idaho
The proposed Consent Order
remedies the likely anticompetitive
effects in Eastern Idaho by requiring the
divestiture of FSA’s distribution center
in Boise to Shamrock. The divestiture
assets and rights include the
distribution center and selected
broadline distribution assets, including
employees and tangible assets necessary
to operate the business.
B. Western and Eastern North Dakota
The proposed Consent Order
remedies the likely anticompetitive
effects in both Western and Eastern
North Dakota by requiring the
divestiture of FSA’s distribution center
in Fargo to Cash-Wa. The divestiture
assets and rights include the
distribution center and selected
broadline distribution assets, including
employees and tangible assets necessary
to operate the business.
C. The Seattle Area
The proposed Consent Order
remedies the likely anticompetitive
effects in the Seattle Area by requiring
the divestiture of FSA’s distribution
center in Kent to Harbor. The divestiture
assets and rights include the
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distribution center and selected
broadline distribution assets, including
employees and tangible assets necessary
to operate the local broadline
distribution business. Although the
proposed Consent Order only requires
USF to divest one of FSA’s two Seattlearea broadline distribution centers, this
remedy will prevent any increase in
market concentration levels and
preserve the status quo in the Seattle
Area broadline distribution market
because three major broadline
distributors will remain.
D. National
The proposed Consent Order
remedies the likely anticompetitive
effects in the national market by
replacing the loss of FSA from DMA’s
network with divestiture of the Kent,
Boise, and Fargo distribution centers to
three purchasers that are existing
members of the DMA consortium. The
divestiture assets and rights that
Shamrock, Cash-Wa, and Harbor will
acquire will enable each buyer to
operate the local broadline distribution
businesses in their respective local
markets, but also to provide effective
coverage to the DMA network in these
regions so that DMA can continue to be
an attractive option to, and effective
competitor for, multi-regional and
national customers.
The proposed Decision and Order will
have a term of ten (10) years.
The sole purpose of this analysis is to
facilitate public comment on the
proposed Consent Agreement. This
analysis does not constitute an official
interpretation of the proposed Consent
Agreement or modify its terms in any
way.
By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2019–20182 Filed 9–17–19; 8:45 am]
BILLING CODE 6750–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Disease Control and
Prevention
Announcement of Requirements and
Registration for The REACH Lark
Galloway-Gilliam Nomination for
Advancing Health Equity (REACH Lark
Award)
Centers for Disease Control and
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and Human Services (HHS).
Award Approving Official: Robert R.
Redfield, M.D., Director, Centers for
Disease Control and Prevention, and
AGENCY:
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]]>Agencies
[Federal Register Volume 84, Number 181 (Wednesday, September 18, 2019)]
[Notices]
[Pages 49106-49108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-20182]
-----------------------------------------------------------------------
FEDERAL TRADE COMMISSION
[File No. 181 0215]
US Foods Holding Corp.; Analysis of Agreement Containing Consent
Orders To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement; Request for Comment.
-----------------------------------------------------------------------
SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair methods of competition.
The attached Analysis of Agreement Containing Consent Orders to Aid
Public Comment describes both the allegations in the complaint and the
terms of the consent orders--embodied in the consent agreement--that
would settle these allegations.
DATES: Comments must be received on or before October 18, 2019.
ADDRESSES: Interested parties may file comments online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write: ``US Foods Holding
Corp.; File No. 181 0215'' on your comment, and file your comment
online at https://www.regulations.gov by following the instructions on
the web-based form. If you prefer to file your comment on paper, mail
your comment to the following address: Federal Trade Commission, Office
of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex D),
Washington, DC 20580, or deliver your comment to the following address:
Federal Trade Commission, Office of the Secretary, Constitution Center,
400 7th Street SW, 5th Floor, Suite 5610 (Annex D), Washington, DC
20024.
FOR FURTHER INFORMATION CONTACT: Sophia Vandergrift (202-326-2208),
Bureau of Competition, Federal Trade Commission, 600 Pennsylvania
Avenue NW, Washington, DC 20580.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 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 September 11, 2019), on the World Wide Web,
at https://www.ftc.gov/news-events/commission-actions.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before October 18,
2019. Write ``US Foods Holding Corp.; File No. 181 0215'' on your
comment. Your comment--including your name and your state--will be
placed on the public record of this proceeding, including, to the
extent practicable, on the https://www.regulations.gov website.
Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online through the https://www.regulations.gov website.
If you prefer to file your comment on paper, write ``US Foods
Holding Corp.; File No. 181 0215'' on your comment and on the envelope,
and mail your comment to the following address: Federal Trade
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite
CC-5610 (Annex D), Washington, DC 20580; or deliver your comment to the
following address: Federal Trade Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex
D), Washington, DC 20024. If possible, submit your paper comment to the
Commission by courier or overnight service.
Because your comment will be placed on the publicly accessible
website at https://www.regulations.gov, you are solely responsible for
making sure that your comment does not include any sensitive or
confidential information. In particular, your comment should not
include any sensitive personal information, such as your or anyone
else's Social Security number; date of birth; driver's license number
or other state identification number, or foreign country equivalent;
passport number; financial account number; or credit or debit card
number. You are also solely responsible for making sure that your
comment does not include any sensitive health information, such as
medical records or other individually identifiable health information.
In addition, your comment should not include any ``trade secret or any
commercial or financial information which . . . is privileged or
confidential''--as provided by Section 6(f) of the FTC Act, 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)--including in
particular competitively sensitive information such as costs, sales
statistics, inventories, formulas, patterns, devices, manufacturing
processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request, and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted on the public FTC website--as legally required by FTC Rule
4.9(b)--we cannot redact or remove your comment from the FTC website,
unless you submit a confidentiality request that meets the requirements
for such treatment under FTC Rule 4.9(c), and the General Counsel
grants that request.
Visit the FTC website at https://www.ftc.gov to read this Notice and
the news release describing it. The FTC Act and other laws that the
Commission administers permit the collection of
[[Page 49107]]
public comments to consider and use in this proceeding, as appropriate.
The Commission will consider all timely and responsive public comments
that it receives on or before October 18, 2019. For information on the
Commission's privacy policy, including routine uses permitted by the
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.
Analysis of Agreement Containing Consent Orders To Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted for
public comment, subject to final approval, an Agreement Containing
Consent Orders (``Consent Agreement'') from US Foods Holding Corp.
(``USF''), and Services Group of America, Inc. (``SGA'') (collectively,
``Respondents''). The purpose of the Consent Agreement is to remedy the
anticompetitive effects that otherwise would result from USF's
acquisition of SGA's Food Group of Companies (the ``Proposed
Acquisition'') in and around Boise, Idaho (hereafter ``Eastern
Idaho''), in and around Bismarck, North Dakota, (hereafter ``Western
North Dakota''), in and around Fargo, North Dakota (hereafter ``Eastern
North Dakota''), in and around Kent, Washington (hereafter the
``Seattle Area''), and nationwide for multi-regional and national
customers.
Among other things, the proposed Consent Agreement requires USF to
divest certain of SGA's distribution centers and broadline distribution
assets, including employees and tangible assets that are necessary to
the operation of the businesses in Eastern Idaho, Western and Eastern
North Dakota, and the Seattle Area to Shamrock Foods Co.
(``Shamrock''), Cash-Wa Distributing (``Cash-Wa''), and Harbor
Wholesale Foods (``Harbor''), respectively.
The Commission and the Respondents have also agreed to an Order to
Maintain Assets. This order requires USF and SGA to maintain the assets
that the Consent Agreement requires divestiture of, pending their
divestiture. The Commission's Complaint alleges that the Proposed
Acquisition, if consummated, would violate Section 7 of the Clayton
Act, as amended, 15 U.S.C. 18, and Section 5 of the Federal Trade
Commission Act, as amended, 15 U.S.C. 45, by substantially lessening
competition in the market for broadline foodservice distribution in
Eastern Idaho, Western North Dakota, Eastern North Dakota, the Seattle
Area, and nationwide for multi-regional and national broadline
distribution customers.
The Consent Agreement has been placed on the public record for 30
days to solicit comments from interested persons. Comments received
during this period will become part of the public record. After 30
days, the Commission will review the comments received and decide
whether it should withdraw, modify, or finalize the Consent Agreement.
II. The Respondents and the Transaction
USF, headquartered in Rosemont, Illinois, is the second-largest
distributor of food and food-related products in the United States. USF
operates 61 distribution facilities throughout the United States, all
of which provide broadline distribution, and some of which serve
national chain customers (providing more of a systems-type service). In
fiscal year 2017, USF generated approximately $24 billion in sales to
over 200,000 customers nationwide. Nearly $6 billion of those sales
were to independent (i.e., non-chain) restaurants.
Headquartered in Scottsdale, Arizona, Services Group of America,
Inc. is a holding company made up of six operating companies. SGA is
comprised of Food Services of America (``FSA''), a broadline
foodservice distributor (notably, FSA is the only SGA business unit
that generates competitive concern); Systems Services of America
(``SSA''), a systems distributor; Amerifresh, a specialty produce
distributor; Ameristar Meats, a specialty meat processor; and GAMPAC, a
supply chain and logistics company. In fiscal year 2017, SGA generated
approximately $3.2 billion in sales. SGA has nine broadline
distribution centers, three systems distribution centers, and three
specialty facilities. FSA and SSA are members of Distribution Market
Advantage (``DMA''), a supply chain and marketing cooperative owned by
eight independent regional foodservice distributors who are also its
members. Through DMA, FSA is able to serve national accounts in
coordination with other large regional distributors.
On July 28, 2018, USF entered into a Stock Purchase Agreement with
SGA. Pursuant to the agreement, USF will purchase all of the
outstanding common stock of SGA's Food Group of Companies in an all-
cash acquisition valued at $1.8 billion.
III. Broadline Foodservice Distribution in Eastern Idaho, Western North
Dakota, Eastern North Dakota, the Seattle Area, and Nationwide
Broadline foodservice distribution and broadline foodservice
distribution to national customers are the relevant product markets in
which to assess the effects of the Proposed Acquisition. Broadline
foodservice distribution involves the sale and distribution of a broad
range of national-brand and private-label food and foodservice-related
products (such as paper towels, disposable cups, etc.) to a range of
customers who serve food-away-from-home to consumers, such as
restaurants, hospital cafeterias, stadiums, and schools. Broadline
distributors offer customers a distinct combination of products and
services that are not replicated by other foodservice distribution
channels, including a wide array of stock keeping units (SKUs) to
provide customers with product breadth and depth, a broad selection of
private-label (i.e., distributor-branded) food products, a frequent and
flexible delivery schedule (including next-day delivery), and other
value-added services, such as order tracking, menu planning, and
nutritional information. Customers value the ability to purchase this
bundle of products and services from a single broadline distributor.
There are four local relevant geographic markets in which to
analyze the transaction's effects: (1) Eastern Idaho, (2) Western North
Dakota, (3) Eastern North Dakota, and (4) the Seattle Area. Competition
to serve broadline customers plays out locally. The business of
broadline distribution involves regularly loading food (much of which
is perishable) and related items onto trucks, driving to customer
locations, unloading the merchandise, and returning to the distribution
center in time to repeat this process for the next day's deliveries.
Customers, therefore, select from among broadline distributors within a
reasonable radius of their location. Likewise, broadline distributors
are limited in their distribution radius by cost and service
considerations. USF and FSA compete from proximate distribution centers
to serve customers in Eastern Idaho, Western North Dakota, Eastern
North Dakota, and the Seattle Area, and these are thus appropriate
geographic markets. FSA serves both North Dakota markets out of its
Fargo distribution center, but other distributors serving the Eastern
North Dakota market do not serve Western North Dakota, and thus the
competitive conditions are different
[[Page 49108]]
and it is appropriate to define two geographic markets within the
state.
USF and FSA compete closely to serve local broadline customers in
Eastern Idaho, Western North Dakota, Eastern North Dakota, and the
Seattle Area. The transaction would eliminate a key broadline
distributor in each of these markets, limiting customers' ability to
switch between distributors and leverage them in order to obtain more
competitive pricing and better service. The few remaining competitors
in the relevant markets would be insufficient to alleviate competitive
concerns. As a result, the Proposed Acquisition will likely lead to
higher prices and diminished service for local broadline customers in
the four local markets.
The effects of the Proposed Acquisition must also be evaluated in
the national market. Through its membership in a consortium of regional
distributors, DMA, FSA competes with USF for the provision of broadline
distribution services to multi-regional and national accounts. If DMA
were to lose all of FSA's distribution centers from its network, it
would be rendered a significantly less attractive competitor than it is
today to many multi-regional and national customers. As a result, the
Proposed Acquisition will likely result in higher prices and reduced
quality and service to national customers.
New entry or expansion is unlikely to deter or counteract the
anticompetitive effects of the acquisition in the Eastern Idaho,
Western North Dakota, Eastern North Dakota, Seattle Area, and national
markets. The broadline foodservice distribution industry is capital and
labor intensive, rendering entry challenging and time consuming, with
significant operational and financial risks. Prospective entrants or
expanders face three main obstacles: (1) Developing the requisite sales
forces and customer base; (2) establishing a properly outfitted
distribution center, truck fleet, and driver base for operations and
delivery; and (3) building the volume of perishable and non-perishable
SKUs necessary to serve broadline customers. To overcome these hurdles,
a new entrant or an adjacent company trying to expand must commit a
tremendous amount of capital and time to develop relationships with
potential customers, build or expand an existing facility, and assemble
the equipment required for distribution in that area. Thus, due to the
considerable time and investment required to build a functional
broadline distribution operation in a new market, entry and expansion
are unlikely to be timely, or sufficient to deter or counteract the
Proposed Acquisition's anticompetitive effects.
IV. The Proposed Consent Agreement
The proposed Consent Order remedies the likely anticompetitive
effects in each of the relevant markets by requiring divestitures to
Shamrock, Cash-Wa, and Harbor within 30 days of the Proposed
Acquisition's closing. Until the completion of each divestiture, the
Respondents are required to abide by the Order to Maintain Assets,
which requires them to maintain the viability, marketability, and
competitiveness of the divestiture assets until the divestitures are
completed. The proposed Consent Order appoints a Monitor to ensure the
Respondents' compliance with the Order to Maintain Assets, Consent
Order, and Divestiture Agreements in anticipation of and following the
divestiture.
Additionally, the proposed Consent Order requires the Respondents
to provide transitional services to the approved acquirer for at least
24 months after the divestiture, as needed, to assist the acquirer with
the transfer and operation of the divested assets. Finally, the
proposed Consent Order contains standard terms regarding the acquirer's
access to employees, protection of Material Confidential Information,
and compliance reporting requirements, among other things.
A. Eastern Idaho
The proposed Consent Order remedies the likely anticompetitive
effects in Eastern Idaho by requiring the divestiture of FSA's
distribution center in Boise to Shamrock. The divestiture assets and
rights include the distribution center and selected broadline
distribution assets, including employees and tangible assets necessary
to operate the business.
B. Western and Eastern North Dakota
The proposed Consent Order remedies the likely anticompetitive
effects in both Western and Eastern North Dakota by requiring the
divestiture of FSA's distribution center in Fargo to Cash-Wa. The
divestiture assets and rights include the distribution center and
selected broadline distribution assets, including employees and
tangible assets necessary to operate the business.
C. The Seattle Area
The proposed Consent Order remedies the likely anticompetitive
effects in the Seattle Area by requiring the divestiture of FSA's
distribution center in Kent to Harbor. The divestiture assets and
rights include the distribution center and selected broadline
distribution assets, including employees and tangible assets necessary
to operate the local broadline distribution business. Although the
proposed Consent Order only requires USF to divest one of FSA's two
Seattle-area broadline distribution centers, this remedy will prevent
any increase in market concentration levels and preserve the status quo
in the Seattle Area broadline distribution market because three major
broadline distributors will remain.
D. National
The proposed Consent Order remedies the likely anticompetitive
effects in the national market by replacing the loss of FSA from DMA's
network with divestiture of the Kent, Boise, and Fargo distribution
centers to three purchasers that are existing members of the DMA
consortium. The divestiture assets and rights that Shamrock, Cash-Wa,
and Harbor will acquire will enable each buyer to operate the local
broadline distribution businesses in their respective local markets,
but also to provide effective coverage to the DMA network in these
regions so that DMA can continue to be an attractive option to, and
effective competitor for, multi-regional and national customers.
The proposed Decision and Order will have a term of ten (10) years.
The sole purpose of this analysis is to facilitate public comment
on the proposed Consent Agreement. This analysis does not constitute an
official interpretation of the proposed Consent Agreement or modify its
terms in any way.
By direction of the Commission.
April J. Tabor,
Acting Secretary.
[FR Doc. 2019-20182 Filed 9-17-19; 8:45 am]
BILLING CODE 6750-01-P
