On May 5, 2008, in 4-0 vote, the Federal Trade Commission (“FTC”) entered into a settlement agreement that allowed Agrium, Inc. to buy UAP Holding Corporation (“UAP”) for $2.5 billion, making UAP a wholly owned subsidiary of Agrium.
Agrium is required to sell five UAP farm stores in Michigan and two Agrium stores in Maryland and Virginia within 180 days of the acquisition. The order requires the divestiture of Agrium’s store in Keller, VA, and that it is sold as a unit with Agrium’s Pocomoke/Girdletree, Maryland store, because the store in Virginia supplies the store in the Maryland region. The order also contains an Order to Hold Separate and Maintain Assets that requires the companies to maintain the assets to be divested pending their sale and provides for the appointment of an interim monitor to oversee the assets to be sold in the relevant markets.
Operating out of Calgary, Alberta, Agrium is the largest farm retailer in the United States operating 433 stores while UAP is the second largest with 370 operations nationwide. Both companies are major providers of bulk fertilizer and other related farm services. The proposed deal would provide Agrium’s bottom line another $550 million.
The FTC contended that this merger would violate federal antitrust laws including Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended. It alleged that Agrium and UAP own stores in six competing markets in Michigan and Maryland. The FTC cited the nature of the market and difficulty of entry into it as reasons that the merger would decrease competition.
The Commission contended that bulk fertilizer is a critical product, without which most growers cannot operate profitably and for which there is no close substitute. Farmers typically want one-stop shopping from their farm stores and favor a single provider that can deliver all of the products and services they need. However, while farmers may visit the stores, sales representatives also call on the farmers, with bulk fertilizer delivered to their farms in trucks or spreaders. Typically, because of the high cost of transporting bulk fertilizer long distances and other reasons, it is only sold to farms that are 20-30 miles from the stores, resulting in a series of small relevant geographic markets.
What is noteworthy about the six month investigation is that the FTC conducted its investigation without issuing a second request. The parties refused to accept a second request because of the burdensome nature of the second request process. The FTC willingly allowed the parties to provide documents without compulsory process and negotiated a settlement with the parties without formally issuing a second request. In addition, the FTC allowed the deal to proceed without an upfront buyer. We believe this was a unique situation that will not occur very frequently in the future.