The approval this week by the US Federal Trade Commission (FTC) of A&P’s acquisition of regional US retailer Pathmark Stores demonstrated once again that regulatory wheels grind rather more slowly than their counterparts in the thrusting corporate world. Ben Cooper reports.
In spite of being more open institutions than they used to be, and more geared up to dealing with the press – arguably to counter the slick PR machines of the corporate world – the internal processes of business regulators still remain something of a mystery. What is evident, however, is that corporate regulators take their time.
In the US this week, the Federal Trade Commission (FTC) finally approved, with certain conditions, the acquisition by US retailer A&P of New Jersey-based supermarket operator Pathmark Stores for US$1.4bn, a small matter of six months after the deal was originally announced.
There is nothing particularly surprising in the FTC’s painstaking approach. Indeed, the business community has something to gain from diligent official scrutiny. In the post-Enron era, the corporate world is under greater scrutiny than ever to maintain standards of corporate governance, and, perhaps most crucially, be seen to do so. Regulatory bodies and processes that have real credibility with investors, the public and politicians – even if they are a bit long-winded – can only help in this cause. And certainly in this instance, as with its other longstanding investigation into the Whole Foods Market purchase of Wild Oats Market, the FTC appears to have left no stone unturned.
But the fact that the cut and thrust of the corporate world is ultimately subject to the slowly grinding wheels of official regulators nevertheless represents an interesting collision of opposites.
Merger and acquisition activity is characterised by cloak-and-dagger research and preparation, long and drawn out, secretive meetings between bankers, lawyers and corporate executives going late into the night, followed by the surgical strike – the announcement to the market hopefully foiling too much speculative share trading.
Then everything stops – for months! Having seemingly sweated blood to get to this critical stage, the corporate go-getters are then at the mercy of financial regulators. Of course in this day and age, those working in such institutions will have their targets and deadlines, but coffee-fuelled meetings lasting into the small hours probably do not feature too prominently. And there is a serious point here. Corporate regulation should not be a hurried process, and, to a degree, the regulator can say “it will take as long as it takes” to impetuous executives.
As the A&P and Whole Foods Market investigations bear out, retail deals seem particularly prone to lengthy antitrust investigations because the regulator has to look at countless local markets to verify exactly where competition issues may arise. In the case of the A&P/Pathmark deal, a combined estate of 450 stores gave the regulator a lot of individual markets to analyse.
Interestingly, antitrust experts believe that grocery store mergers are more likely to gain regulatory approval nowadays, as patterns of grocery shopping are changing.
At a conference examining merger issues related to supermarket retailing, held earlier this year, the FTC acknowledged that its thinking regarding the grocery industry had changed. The FTC conceded that the advent of retailers as Wal-Mart and the bulk retailer Costco meant that the traditional model of a family visiting one store each week to fulfill its grocery needs was outdated, with consumers now shopping at a variety of stores to satisfy contrasting specialist or basic needs.
After all the investigation into the Pathmark deal, not to mention the months of waiting, it does seem a little anti-climactic that the FTC has only called for A&P to sell six of the stores, though the regulator would perhaps argue that that is not the point.
The stores in question are located in Staten Island and Shirley, New York. The FTC consent decree states that these stores must be sold to preserve grocery competition in those areas. Four A&P-owned stores, trading as Waldbaum’s, and one Pathmark supermarket in Staten Island, are earmarked to be sold to King Kullen Grocery Company, while a Waldbaum’s supermarket in Shirley is to be sold to the Ahold subsidiary Stop & Shop. The sales are required to be completed by 10 January.
“A&P and Pathmark are supermarket competitors in the highly concentrated areas of Staten Island and Shirley, Long Island, New York,” said Jeffrey Schmidt, director of the FTC’s Bureau of Competition. “Absent the relief provided by the Commission’s consent order, consumers in these areas likely would face higher prices and lower levels of service when shopping for their weekly groceries.”
The FTC order also prohibits A&P and Pathmark from owning or leasing interests in any property in either Staten Island or Shirley that has operated as a supermarket during the last six months for the next ten years, without prior notice to the FTC.
The consent agreement is subject to a 30-day public comment period, after which the FTC may propose modifications before the consent order is made final. But A&P was not required to delay closing of the acquisition for that comment period, and duly announced the completion of the deal on 3 December.
The locations picked up by the FTC match pretty closely those flagged up by analysts at the time the deal was struck in March, and in spite of the protracted investigation, it never seemed likely that the deal would be blocked. For that reason, the matter was never likely to degenerate into the acrimony seen during the Whole Foods Market investigation. Nevertheless, for a deal that was always likely to go through – and which only required the selling-off of six stores to satisfy anti-trust conditions – the FTC certainly kept A&P waiting.