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The Federal Trade Commission is investigating Wal-Mart Stores Inc.’s Feb. 6 acquisition of Puerto Rico’s largest grocer amid concerns that it could lead to higher food prices on the island. The FTC’s New York office, which has overall responsibility for Puerto Rico, is coordinating the probe of the Supermercados Amigo transaction. Sources said the agency has contacted other supermarkets in Puerto Rico for information on the market. Sources said these retailers have presented the FTC with studies and other documents showing that Wal-Mart-owned Sam’s Club competes head-to-head with the grocery chains. The agency had been prepared to issue a second request for more details on the deal, but sources said Wal-Mart decided to refile its Hart-Scott-Rodino Antitrust Improvements Act notice instead. This gives the FTC another 30 days to decide whether the transaction deserves further scrutiny. A Wal-Mart spokeswoman declined to comment on the status of the investigation. “It is ongoing litigation, and we are still working with the FTC,” she said. An FTC spokesman had no comment. Terms were not disclosed on the deal. But while the transaction is small, it is attracting attention among antitrust lawyers. They said the merger could clarify whether the FTC, under Chairman Timothy J. Muris, believes regulators should include members-only warehouse stores such as Sam’s Club in the market definition for supermarket deals. Sources said Muris has been sympathetic to broadening the definition of supermarkets and has suggested that economists study whether prices are lower in markets with club stores than in those without them. The agency historically has excluded warehouse club stores, arguing they lack the variety of products available at supermarkets. They also have said there is little evidence that warehouse stores affect supermarket prices. This traditional approach would be good news for Wal-Mart. Sources said the deal would sail through because Wal-Mart only operates one store on the island that qualifies as a traditional grocer. But adding warehouse club stores to the market definition changes the equation, sources said, and could cause the FTC to challenge the deal. Wal-Mart operates seven Sam’s Club stores and has two more under construction, a source said. Adding Puerto Rico’s largest grocery chain to its portfolio would make it a much more dominant food retailer. One retail source opposed to the deal said a study commissioned by a Puerto Rican trade group found that the seven current Sam’s Club stores have 11 percent of the grocery market in Puerto Rico, a large amount given that Amigo, with 35 stores, has only 17 percent of the market. The next two largest chains have 15 percent and 9 percent, respectively. Typically, these market concentration scores would not be high enough to induce antitrust officials to block a deal. But the retail source said that after these four big chains, the market is populated by smaller chains, some of which more closely resemble convenience stores than supermarkets. The actual concentration scores, known as the Herfindahl-Hirschman Index, would likely be higher because the FTC would exclude these smaller players. The retailer also said Puerto Rico is unique because the Sam’s Clubs there carry smaller-sized products typically found in supermarkets. For instance, he said consumers can buy a 16-ounce jar of mayonnaise either at Sam’s Club or Amigo. This has the retailer convinced the FTC will include Sam’s Club in the market definition for supermarkets. “Given the amount of evidence we have given them, they have sufficient information to conclude that club stores meet the definition of a supermarket,” he said. Such a decision would elate antitrust lawyers who work with grocers. With warehouse stores included, the market shares would fall for traditional supermarkets. That means some deals that previously would have raised antitrust alarms now would pass muster. “It would be great if [regulators] challenged it because then every supermarket in a deal would say you included club stores in that one,” an antitrust lawyer said. “This has been an age-old battle for supermarket lawyers,” a second attorney said. “Our clients always ask about club stores because there is a huge amount of volume being diverted to them.” Albert Foer, president of the American Antitrust Institute, said the time may have come for such a policy shift. “It is becoming increasingly difficult to see how you exclude warehouse clubs from the market,” Foer said. “Supermarkets believe sales are being taken away.” Still, antitrust lawyers said the odds heavily favor Wal-Mart, though there could be a substantial investigation. “There are new people in charge [at FTC],” said Marc Schildkraut, a partner at Howrey Simon Arnold & White in Washington, D.C. “But it would be an amazing thing to change. “They would really have to make a midstream correction.” Copyright (c)2002 TDD, LLC. All rights reserved.

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