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To settle Federal Trade Commission (FTC) charges that its recent acquisition of 79 stores from the Penn Traffic Co. was anticompetitive in several areas of New York and Pennsylvania, Tops Markets, LLC has agreed to sell seven of the supermarkets.
After Penn Traffic filed for Chapter 11 bankruptcy in November 2009, Tops purchased all of the Syracuse, N.Y.-based company’s assets, including the 79 locations in New York, Pennsylvania, Vermont and New Hampshire, for about $85 million. Because the commission adopted a flexible process for reviewing the potentially anticompetitive effects of the deal, no Penn Traffic stores were liquidated in the Chapter 11 proceeding.
The FTC’s investigation pinpointed five areas where competition was an issue: Bath, Cortland, Ithaca (two stores), and Lockport, N.Y.; and Sayre, Pa (two stores). According to the FTC, Tops’ acquisition of stores in these markets would likely lead to higher grocery prices for shoppers. In each market, there are no more than three supermarkets within a 10- to 15-mile radius. In line with previous investigations, the commission found that other chains such as Aldi’s, warehouse clubs and other food retailers would not keep prices low after the merger went through.
Additionally, in many of these areas, the FTC determined that new competitors were unlikely to enter the market fast enough to offset the acquisition’s anticompetitive impact. Further, in those markets where entry might take place in the future, the commission ruled that even with the new competition, the markets would still be highly concentrated and the transaction was thus anticompetitive.
Because a full FTC investigation before the deal was done could have led the bankruptcy court to liquidate the assets, the FTC came to an agreement with Williamsville, N.Y.-based Tops that enabled the transaction to close immediately, while letting the commission finish its review after the deal closed. At the same time, Tops agreed to keep all Penn Traffic stores it purchased open and subsequently to sell any locations that raised competitive concerns for the FTC.
Yesterday’s settlement order requires Tops to sell the seven stores to an FTC-approved buyer within three months. It also requires the grocer and its parent company, Holdco LLC, to do everything necessary to facilitate the sale and operation of the locations.
The FTC vote approving the complaint and proposed settlement order was five to zero. The order will be subject to public comment for 30 days, until Sept. 7, after which the commission will decide whether to make it final.
Before the acquisition, Tops owned and operated 71 supermarkets in New York and Pennsylvania, all under the Tops banner.