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FTC v. SOUTHLAND CORP.

May 18, 1979

FEDERAL TRADE COMMISSION, Plaintiff,
v.
The SOUTHLAND CORPORATION et al., Defendants



The opinion of the court was delivered by: SMITH, JR.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Findings of Fact

 A. The Parties

 1. Southland is a corporation organized under the laws of the State of Texas with its corporate headquarters located in Dallas, Texas. Southland operates convenience food stores under the trade name "7-Eleven" in many areas of the United States and also operates a number of fluid milk processing plants in several states. Southland has two dairy divisions in the State of Texas Cabell's and Oak Farms. Southland's Oak Farms Division has fluid milk processing plants in Dallas and Houston.

 2. Defendant Knowlton's is a corporation organized and existing under the laws of the State of Texas with its principal place of business in San Antonio, Texas. Knowlton's is a family-owned firm engaged in the processing and sale of dairy products primarily in the San Antonio metropolitan area. It also operates nine milk and ice cream stores in the city of San Antonio. It reported total sales in 1978 of $ 10,988,000, of which $ 4,009,000 were Class I milk products (including $ 673,000 in home delivery sales to consumers). It processed over 44 million pounds of Class I fluid milk in 1978. In that year Knowlton's was the third largest wholesale distributor of milk in the San Antonio SMSA with 10.6% Of that market. Likewise 7.0% Of all milk sold at retail in the San Antonio SMSA was processed by Knowlton's, which ranked fourth in that market.

 3. On January 31, 1979 Southland and Knowlton's entered into an agreement by which Southland agreed to acquire all the assets of Knowlton's. At the time this action was initiated the acquisition was to be consummated on April 30, 1979. However, Southland and Knowlton's have agreed to postpone the acquisition pending this Court's resolution of the case.

 4. The Federal Trade Commission has issued an administrative complaint challenging the proposed acquisition under Section 7 of the Clayton Act, 15 U.S.C. § 18 (1976), and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45 (1976), and has moved this Court for an order preliminarily enjoining the acquisition pursuant to Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b) (1976).

 B. The Relevant Market

 5. There are two possible product markets in which the acquisition can be assessed: (1) the processing and wholesale distribution of packaged fluid milk, ("the distribution market"); and (2) the processing, distribution and sale of packaged fluid milk ("the sales market").

 6. The Federal Trade Commission alleges that the relevant "section of the country" or "geographic market" in which Southland's acquisition of Knowlton's should be evaluated is the San Antonio Standard Metropolitan Statistical Area (SMSA), consisting of the Texas counties of Bexar, Comal and Guadalupe. Defendants Southland and Knowlton's, on the other hand, argue that the relevant geographic market is considerably larger than the San Antonio SMSA.

 7. Both Knowlton's and Southland meet and compete directly with each other in the San Antonio area. Both companies sell a portion of their product in their own stores and distribute portions of their output to other commercial and institutional outlets.

 8. There are four milk processing plants located in the San Antonio SMSA. These are operated by Borden, Foremost, Knowlton's and H.E. Butt, a supermarket chain. Knowlton's sells over 90% Of its output in the San Antonio SMSA but also delivers milk to Austin, 77 miles from San Antonio, and to Uvalde, approximately 80 miles west of San Antonio. Borden, Foremost and H.E. Butt all sell a significant percentage of their processed fluid milk to areas outside of the San Antonio SMSA, including Austin; Del Rio, 149 miles west of San Antonio; and Laredo, 153 miles southwest of San Antonio. H.E. Butt supplies all of its stores in south Texas, including those in Waco, 178 miles to the north of San Antonio, and Houston, 197 miles east of San Antonio. Foremost serves these areas and supplies the Corpus Christi area from its San Antonio plant as well.

 9. Dairy processing plants located outside of the San Antonio SMSA are effective competitors in San Antonio. Superior Dairy in Austin, Pure Milk Company in Waco, Southland's Oak Farms Division and Schepp's Dairy in Dallas (270 miles from San Antonio), Marigold Dairy in Fort Worth (270 miles from San Antonio), and ...


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