FTC Staff Says Federated Merger Wouldn’t Violate Antitrust Law
A staff study by the Federal Trade Commission has concluded that a merger of two of the nation’s largest retail chains, Federated Department Stores and the Canadian-owned Allied Stores, would not violate antitrust laws because consumers have many other types of retail outlets available to them, a House subcommittee disclosed Wednesday.
FTC Chairman Daniel Oliver, testifying at a House subcommittee hearing called expressly to assail the preliminary FTC determination, confirmed that the agency’s staff decided earlier this month not to challenge the hostile takeover of Federated by Toronto real estate magnate Robert Campeau.
But Rep. Thomas A. Luken (D-Ohio), chairman of the transportation subcommittee of the House’s powerful Energy and Commerce Committee, charged Wednesday that the staff study “violated principles and guidelines” that should have been used to assess the consumer impact of the retail chain merger.
Some members of Congress are pressing commission members now to intervene to re-evaluate the proposed merger. Oliver indicated that the commission intends to study the matter.
Meanwhile, in Toronto, Campeau tried another tactic Wednesday that retail industry observers said was designed to step up pressure on Federated’s board of directors. It announced that its most recent $66-per-share, or $5.84-billion, offer for Federated was only good until midnight Sunday.
If the retailer’s board fails to act by then, its cash tender offer for all shares would become $61 a share, Campeau said. Its original offer was for $47.
On Tuesday, Federated’s board rejected a Campeau proposal to pay $66 a share on the grounds that financing for the deal was in doubt. Federated also outlined a proposal to sell off most of its non-department store assets, including Ralphs Grocery in Compton, or to continue to try to negotiate a sale for a higher price.
A Wall Street source said Wednesday that investors were still holding out hope for a higher bid in the form of a $68- to $70-a-share buyout by management in conjunction with Kohlberg Kravis Roberts & Co., a New York investment firm. In composite trading, Federated stock closed off $2 a share at $61.75.
The hearings Wednesday were prompted by a decision by the commission staff to let pass a 15-day waiting period without demanding further information about the merger bid from Campeau or Federated.
The staff memo, dated Feb. 6 and marked “confidential” but distributed Wednesday by the subcommittee, concluded that “although this acquisition would combine the first and third-largest department store chains in the country, we do not feel that it raises competitive concerns.”
The study explained that “there will continue to be strong competition from numerous other department store chains, mass merchandisers, discounters and small specialty retailers.”
It conceded that stores owned by Allied and Federated would “overlap” substantially in New England and Florida. But it said that, taking into account other department stores and discount outlets operating in the regions, the two firms’ combined market share would total only 22.7% in New England and 32.8% in Florida.
Luken charged that the regions examined by the staff were too large. Guidelines specify that the market impact should be gauged in metropolitan areas or even parts of those areas, he said.
Witnesses from New England and Florida testified that the merger would concentrate more than 80% of the department store market under single ownership in Boston and would “have a devastating effect on the Miami community.”
Allied, which Campeau acquired late in 1986, owns Jordan Marsh, a department store with operations in Boston and Miami. Federated, based in Cincinnati, owns Filene’s in Boston and Burdines in Miami.
Federated also owns Bullock’s in Los Angeles and I. Magnin in San Francisco, but neither Luken nor any witnesses alleged that the merger would cause any threat to retail competition in California.
Competition Is Fierce
Oliver noted that the Hart-Scott-Rodino Act, the amendment to the Clayton Antitrust Act under which FTC staffers review certain merger offers, forbids any public discussion of cases under FTC scrutiny and made it plain that commission members had not reviewed the staff study.
However, speaking generally about the FTC’s reviews of market impact, Oliver said that “while it may have made sense to focus . . . on traditional department stores in some markets in the past, today the retailing industry is highly diversified and . . . is becoming more diversified each year.”
Added FTC Commissioner Terry Calvani: “It’s common sense. Just get on the phone and ask the CEO (chief executive) of a department store in any city: ‘If you tried to merge to monopoly with a competing department store, would you be able to control the prices of the products you sell?’ The answer will be, ‘No, because competition today is fierce in all product lines.’ I personally would have been surprised if the (FTC) staff had taken any keen interest in this case.”
“I’m surprised that you’re surprised,” countered Luken. “That’s a shocker to me.”
A committee staff member said commission members would be called to another hearing on the issue Feb. 24.
Martha Groves in Los Angeles contributed to this story.