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Topics: BP Amoco
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| Agency: Federal Trade Commission
Date: 30 December 1998 |
"Although the merger of BP and Amoco involves companies of enormous size, and there is a significant trend toward concentration in the petroleum industry, the operations of these two companies rarely overlap in a way that threatens competition," said FTC Chairman Robert Pitofsky.
"Where they do overlap, mainly in wholesale and retail sale of gasoline in local markets in this country, the Commission with the cooperation of the companies has achieved substantial divestitures and other relief that makes it likely that consumers will enjoy the benefits of competition. Megamergers in all industries warrant close antitrust review. The Commission will continue to examine each transaction on its own special facts to determine whether the overall effect is likely to lessen competition and injure consumers."
BP, headquartered in London, England, is a diversified energy products company engaged in oil and gas exploration; the production and transportation of crude oil and natural gas; the refining, terminaling, and sale of gasoline, diesel fuel, jet fuel and other petroleum products; and the production and sale of petrochemicals. BP distributes and markets its gasoline under the BP brand name through terminals and retail service stations, in a variety of areas, including areas in the Southeastern and Midwestern United States.
Amoco, headquartered in Chicago, Illinois, is an integrated petroleum and chemical products company engaged in the exploration and production of crude oil, natural gas, and natural gas liquids. It also refines and transports petroleum products, such as crude oil, gasoline, jet fuel, and diesel fuel and terminals and sells gasoline, diesel fuel, and other petroleum products. Like BP, Amoco is a major producer of gasoline and other petroleum products in the United States.
According to the Commission, an examination of all of the areas in which BP and Amoco’s operations might overlap found that BP and Amoco’s operations do not overlap significantly in most of their operations, such as oil and natural gas production or in petrochemical manufacturing. However, the transaction raises competitive concerns in a number of local markets in which the Commission proposed to take action.
The complaint outlining the charges alleges that the merger of BP and Amoco would lessen competition in: (1) the wholesale sale of gasoline in 30 cities or metropolitan areas in the eastern United States and (2) the terminaling of gasoline and other light petroleum products in nine specified geographic markets.
The wholesale sale of gasoline, the complaint notes, is the business of selling gasoline to retail dealers. BP and Amoco sell both branded and unbranded gasoline at terminals serving 30 markets that, as a result of this merger, would become significantly more concentrated, the complaint alleges. In some cases BP or Amoco, or both, sell gasoline on a wholesale basis to retail gasoline stations owned by BP or Amoco, respectively, and either operated by employees of BP or Amoco ("company operated" or "owned and operated" stations) or by persons who have leased gasoline stations from BP or Amoco, on condition that they purchase gasoline from BP or Amoco and resell that gasoline under the brand ("lessee dealers"). In other cases, BP and Amoco sells gasoline to independently owned gas stations ("open dealers") or to intermediaries ("jobbers") who deliver gasoline to individual gas stations owned by the jobber or by other persons. In all cases, however, BP and Amoco, and their branded competitors, set the wholesale price of gasoline. According to the complaint, entry into the market for the wholesale sale of gasoline is difficult.
In order to resolve the antitrust concerns relating to the wholesale sale of gasoline, the proposed settlement would require the divestiture of 134 gas stations in eight markets in which the companies’ ownership overlaps. In Tallahassee, Florida and Pittsburgh, Pennsylvania, Amoco would divest all of its retail gas stations. BP would divest its stations in Charleston, South Carolina; Charlotte, North Carolina; Columbia, South Carolina; Jackson, Tennessee; Memphis, Tennessee; and Savannah, Georgia. The proposed settlement would require BP and
Amoco to divest the stations to an acquirer approved by the Commission. The divestitures must be completed within six months of the signing of the proposed consent agreement (December 29, 1998).
In addition, in all 30 markets, including markets in which neither BP nor Amoco owns gas stations, the proposed settlement would require that the companies give their wholesale customers (both jobbers and open dealers) the option of canceling their franchise and supply agreements with Amoco and BP, freeing them to switch their gas stations to other brands. More than 1,600 gas stations could potentially be affected, the Commission said. To create an incentive for these dealers to change brands, the proposed settlement order would provide that wholesale customers who take advantage of this provision would be released from all debts, loans, and other responsibilities (other than for fuels actually delivered, and some specifically identified loans), if they agree to switch to another brand that has less than 20 percent of the market.
The 30 markets are: Albany, Georgia; Athens, Georgia; Birmingham, Alabama; Charleston, South Carolina; Charlotte, North Carolina; Charlottesville, Virginia; Clarksville, Tennessee; Cleveland, Ohio; Columbia, South Carolina; Columbus, Georgia; Cumberland, Maryland; Dothan, Alabama; Fayetteville, North Carolina; Florence, Alabama; Goldsboro, North Carolina; Hattiesburg, Mississippi; Hickory, North Carolina; Jackson, Tennessee; Memphis, Tennessee; Meridian, Mississippi; Mobile, Alabama; Myrtle Beach, South Carolina; Pittsburgh, Pennsylvania; Raleigh, North Carolina; Rocky Mount, North Carolina; Savannah, Georgia; Sumter, South Carolina; Tallahassee, Florida; Toledo, Ohio; and Youngstown, Ohio.
Another provision of the proposed order would require that unless retail gasoline sellers representing a specified volume of sales in Toledo and Youngstown, Ohio, agree to switch to other brands, the companies must divest retail gasoline stations with an equivalent volume of sales to an acquirer acceptable to the Commission.
In nine metropolitan areas, the complaint charges that the terminaling of gasoline and other light petroleum products would become significantly more concentrated as a result of the merger and entry into the market would be difficult.
Petroleum terminals are facilities that provide temporary storage of gasoline and other petroleum products received from a pipeline or marine vessel, and the redelivery of such products from the terminal’s storage tanks into tank trucks for ultimate delivery to retail gasoline stations or other buyers. According to the FTC, there are no substitutes for petroleum terminals for providing terminaling services.
The proposed settlement would require the divestiture of the nine terminals to Williams Energy Ventures, Inc., a subsidiary of The Williams Companies ("Williams"), or to another acquirer approved by the Commission. Williams is a major energy company with substantial experience in operating terminals. The proposed agreement would require the divestiture occur no later than ten days after the BP/Amoco merger is consummated, or 30 days after the consent agreement is signed, whichever is later.
The nine metropolitan areas are: Cleveland, Ohio; Chattanooga and Knoxville, Tennessee; Jacksonville, Florida; Meridian, Mississippi; Mobile and Montgomery, Alabama; and North Augusta and Spartanburg, South Carolina. BP and Amoco both operate terminals that supply each of these nine areas with gasoline and other light petroleum products.
The Commission vote to accept the proposed consent agreement was 4-0 with Commissioner Orson Swindle concurring in part and dissenting as to the alleged violation concerning wholesale markets for gasoline and the corresponding relief in the proposed order. (Separate statements will be available next week.)
An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the proposed complaint, proposed consent order and the analysis of the proposed consent order to aid public comment are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 9810345)