[Federal Register Volume 64, Number 3 (Wednesday, January 6, 1999)]
[Notices]
[Pages 880-882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-197]


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FEDERAL TRADE COMMISSION

[File No. 981-0345]


The British Petroleum Co. p.l.c., et al.; Analysis To Aid Public 
Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint that accompanies the consent agreement and the terms of the 
consent order--embodied in the consent agreement--that would settle 
these allegations.

DATES: Comments must be received on or before March 8, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: William Baer or Richard Liebeskind, 
FTC/H-374, Washington, DC 20580. (202) 326-2932 or 326-2441.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the 
Commission's rules of practice (16 CFR 2.34), notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of sixty (60) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for December 30, 1998), on the World Wide Web, at ``http://
www.ftc.gov/os/actions97.htm.'' A paper copy can be obtained from the 
FTC Public Reference Room, Room H-130, Sixth Street and Pennsylvania 
Avenue, NW, Washington, DC 20580, either in person or by calling (202) 
326-3627. Public comment is invited. Such comments or views will be 
considered by the Commission and will be available for inspection and 
copying at its principal office in accordance with Sec. 4.9(b)(6)(ii) 
of the Commission's rules of practice (16 CFR 4.9(b)(6)(ii)).

Analysis of the Proposed Consent Order and Draft Complaint to Aid 
Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment from The British Petroleum Company p.l.c. (``BP'') and 
Amoco Corporation (``Amoco'') (collectively ``the proposed 
Respondents'') an Agreement Containing Consent Order (``the proposed 
consent order''). The proposed Respondents have also reviewed a draft 
complaint contemplated by the Commission. The proposed consent order is 
designed to remedy likely anticompetitive effects arising from the 
merger of BP and Amoco.

II. Description of the Parties and the Proposed Acquisition

    BP, headquartered in London, England, is a diversified energy 
products company engaged in oil and gas exploration; the development, 
production and transportation of crude oil and natural gas; the 
refining, marketing, transportation, terminaling and sale of gasoline, 
diesel fuel, jet fuel and other petroleum products; and the production, 
marketing and sale of petrochemicals. BP is a major producer of 
gasoline and other petroleum products in the United States. 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, 
development, and production of crude oil, natural gas, and natural gas 
liquids; the marketing of natural gas and natural gas liquids; the 
refining, marketing, and transportation of petroleum products, 
including crude oil, gasoline, jet fuel, diesel fuel, heating oil, 
asphalt, motor oil, lubricants, natural gas liquids, and petrochemical 
feedstocks; the terminaling and sale of gasoline, diesel fuel, and 
other petroleum products; and the manufacture and sale of various 
petroleum-based chemical products. Like BP, Amoco is a major producer 
of gasoline and other petroleum products in the United States. Amoco 
distributes and markets gasoline under the Amoco brand name through 
terminals and retail service stations in many of the same areas as does 
BP.
    Pursuant to an agreement and plan of merger dated August 11, 1998, 
BP intends to acquire all of the outstanding

[[Page 881]]

common stock of Amoco in exchange for stock of BP valued at the time of 
the agreement at approximately $48 billion. The new combined entity is 
to be renamed BP Amoco p.l.c. As a result of the merger, BP's 
shareholders will hold approximately 60%, and Amoco's shareholders will 
hold approximately 40%, of the new combined entity.
    The Commission has carefully examined all of the areas in which BP 
and Amoco's operations might overlap in or affecting the United States. 
The Commission found that BP's and Amoco's operations do not overlap in 
many areas. However, the transaction raises competitive concerns in a 
number of local markets, and the Commission proposes to take action to 
remedy the potential anticompetitive effects of this merger in these 
markets.
    The Commission considered this transaction in the context of what 
appears to be a significant trend toward consolidation in the petroleum 
industry. In recent months, there have been consolidations in this 
industry involving the refining and marketing operations of Texaco and 
Shell, Marathon and Ashland, and Tosco and Unocal. Other proposed 
combinations may occur, including Exxon's announced proposed merger 
with Mobil and Phillips' proposed combination of its refining and 
marketing operations with those of Ultramar Diamond Shamrock. The 
Commission will continue to examine the effect of proposed 
consolidations through careful analysis of each specific transaction in 
the context of the trend toward concentration.

III. The Draft Complaint

    The draft complaint alleges that the merger of Amoco and BP would 
lessen competition in two relevant lines of commerce: (1) The 
terminaling of gasoline and other light petroleum products in nine 
specified geographic markets, and (2) the wholesale sale of gasoline in 
thirty cities or metropolitan areas in the eastern United States.

A. Terminaling

    The draft complaint alleges that one line of commerce (i.e., 
product market) in which to analyze the merger is the terminaling of 
gasoline and other light petroleum products, such as diesel fuel and 
jet fuel.
    Petroleum terminals are facilities that provide temporary storage 
of gasoline and other petroleumn products received from a pipeline or 
marine vessel, and the redelivery of such products from the terminal's 
storage tanks into trucks or transport trailers for ultimate delivery 
to retail gasoline stations or other buyers. Terminals provide an 
important link in the distribution chain for gasoline between 
refineries and retail service stations. According to the complaint, 
there are no substitutes for petroleumn terminals for providing 
terminaling services.
    The complaint identifies nine metropolitan areas that are relevant 
sections of the country (i.e., geographic markets) in which to analyze 
the effects of the acquisition on terminaling. These metropolitan areas 
are: Cleveland, Ohio; Chattanooga and Knoxville, Tennessee; 
Jacksonville, Florida; Meridian, Mississippi; Mobile and Montgomery, 
Alabama; and North Augusta and Spartanburg, South Carolina. Amoco and 
BP both operate terminals that supply each of these nine metropolitan 
areas with gasoline and other light petroleum products.
    The complaint charges that the terminaling of gasoline and other 
light petroleum products in each of these nine metropolitan areas is 
either moderately concentrated or highly concentrated, and would become 
significantly more concentrated as a result of the merger. Premerger 
concentration in these nine markets, as measured by the Herfindahl-
Hirschman Index,\1\ ranges from more than 1,300 to more than 2,500. As 
a result of the merger, concentration would increase in each terminal 
market by more than 100 points to levels raning from more than 1,500 to 
more than 3,600.
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    \1\ The Herfindahl-Hirschman Index, or ``HHI,'' is a measurement 
of market concentration calculated by summing the squares of the 
individual market shares of all participants in the market. Under 
Section 1.51 of the Horizontal Merger Guidelines issued April 2, 
1992, by the Federal Trade Commission and the Department of Justice, 
the Commission considers concentration levels exceeding 1,800 as 
``highly concentrated'' and concentration levels between 1,000 and 
1,800 to be ``moderately concentrated.''
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    According to the draft complaint, entry into the terminaling of 
gasoline and other light petroleum products in each of these nine 
metropolitan areas is difficult and would not be timely, likely, or 
sufficient to prevent anticompetitive effects that may result from the 
merger.\2\
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    \2\ The Commission has found reason to believe that terminal 
mergers would be anticompetitive on prior occasions. E.g., Shell Oil 
Co., C-3803 (1997) (combination of refining and marketing businesses 
of Shell and Texaco); Texaco Inc., 104 F.T.C. 241 (1984) (Texaco's 
acquisition of Getty Oil Company); Chevron Corp., 104 F.T.C. 597 
(1984) (Chevron's acquisition of Gulf Corporation). Indeed, several 
of the markets involved in this proceeding are markets in which BP 
acquired terminals that were divested by Chevron in 1984 pursuant to 
the Commission's order in Chevron.
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B. Wholesale Gasoline

    The draft complaint alleges that a second line of commerce in which 
to analyze the competitive effects of the merger is the wholesale sale 
of gasoline. Gasoline is a motor fuel used in automobiles and other 
vehicles. It is manufactured from crude oil at refineries in the United 
States and throughout the world. There are no substitutes for gasoline 
as a fuel for automobiles and other vehicles that use gasoline.
    According to the draft complaint, there are thirty cities or 
metropolitan areas in which to evaluate the effects of this merger on 
the wholesale sale of gasoline. 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; Forence, 
Alabama; Goldsboro, North Carolina; Hattiesburg, Mississippi; Hickory, 
North Carolina; Jackson, Tennessee; Memphis, Tennessee; Meridan, 
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 (hereinafter collectively referred 
to as the ``gasoline markets'').
    The wholesale sale of gasoline, as alleged in the complaint, is the 
business of selling branded gasoline to retail dealers. Both BP and 
Amoco sell branded gasoline at wholesale in the markets alleged in the 
complaint. In some cases BP or Amoco, or both, sell gasoline on a 
wholesale basis to retail gasoline stations owned by BP or Amoco, and 
operated either by employees of BP or Amoco (``company operated'' or 
``owned and operated'' stations) or by persons who lease the station 
from BP or Amoco (``lessee dealers''). In other cases, BP and Amoco 
sell gasoline to independently owned stations (``open dealers'') or to 
intermediaries (``jobbers'') who deliver gasoline to individual gas 
stations owned by the jobber or by other persons.
    Irrespective of the identity of the wholesale customer, wholesale 
sellers (BP and Amoco, and their branded and unbranded competitors) set 
the wholesale price of gasoline paid by retail dealers, and that 
wholesale price affects the price of gasoline charged to motorists. In 
the gasoline markets alleged in the complaint, the wholesale

[[Page 882]]

sale of gasoline would become significantly more concentrated as a 
result of the merger, and the relatively small number of remaining 
wholesalers could tacitly or expressly coordinate price increases. 
Postmerger concentration, as measured by the Herfindahl-Hirschman 
Index, would increase by more than 100 points, to levels above 1,400 in 
five markets and to levels above 1,800 in the remaining markets. In 
each of the gasoline markets alleged in the complaint, BP and Amoco, 
and three other firms, would have at least 70% of the wholesale 
gasoline market.
    According to the complaint, entry into the wholesale sale of 
gasoline in each of these markets is difficult and would not be timely, 
likely or sufficient to prevent anticompetitive effects that may result 
from this merger.

IV. Terms of the Agreement Containing Consent Order (``the Proposed 
Consent Order'')

    The proposed consent order will remedy the Commission's competitive 
concerns about the proposed acquisition. Under Paragraph II of the 
proposed consent order, the proposed Respondents must divest the Amoco 
terminal serving each of the nine relevant terminal markets 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 Commission's goal is evaluating possible purchasers of divested 
assets is to maintain the competitive environment that existed prior to 
the acquisition. A proposed buyer must not itself present competitive 
problems. The Commission believes that Williams is well qualified to 
operate the divested terminals and that divestiture to Williams will 
not be anticompetitive in these markets.
    The proposed consent order requires that the divestitures occur not 
later than ten days after the BP/Amoco merger is consummated, or thirty 
days after the consent agreement is signed, whichever is later. The 
proposed consent agreement also requires respondents to rescind the 
transaction with Williams if the Commission, after the comment period, 
decides to reject Williams as the buyer. If the Williams agreement is 
rescinded, then respondents are required to divest the terminals within 
six months from the date the order becomes final, at no minimum price, 
to an acquirer that receives the prior approval of the Commission and 
only in a manner that receives the prior approval of the Commission. If 
respondents have not divested the terminals pursuant to Paragraph II of 
the order, then the Commission may appoint a trustee to divest the 
assets.
    The proposed consent order obtains relief with respect to the 
wholesale sale of gasoline in two ways. First, in eight markets where 
either Amoco or BP (or both) own retail gasoline stations (Charleston, 
South Carolina; Charlotte, North Carolina; Columbia, South Carolina; 
Jackson, Tennessee; Memphis, Tennessee; Pittsburgh, Pennsylvania; 
Savannah, Georgia; and Tallahassee, Florida), Paragraph III of the 
proposed order requires respondents to divest gasoline stations 
belonging to either Amoco or BP (as specified in the proposed order) to 
an acquirer approved by the Commission. These divestitures must be 
completed within six months of the date on which the parties signed the 
agreement containing consent order (December 29, 1998).
    Second, in all 30 markets, including markets in which neither Amoco 
nor BP owns retail gasoline stations, Paragraph IV of the order 
requires Amoco and BP to give their wholesale customers (both jobbers 
and open dealers) the option of conceling their franchise and supply 
agreements with Amoco and BP, freeing them to switch their retail 
gasoline stations to other brands. In order to provide an incentive for 
these persons to switch to other brands, the order provides that 
wholesale customers who take advantage of this provision will be 
released from all debts, loans, obligations and other responsibilities 
under their agreements with Amoco and BP (other than for fuels actually 
delivered and other specified debts scheduled by the respondents), if 
they agree to stop selling Amoco and BP gasoline in the market and not 
sell any other brand that has more than 20% of the market. The proposed 
order requires that BP and Amoco provide notice to their wholesale 
customers upon the Commission's final acceptance of the proposed order 
(should the Commission do so after the public comment period), and 
allows these customers thirty days to exercise this option. Should a 
wholesale customer choose to terminate its relationship with BP or 
Amoco under the terms of the proposed order, BP and Amoco will not 
solicit that customer as a re seller of branded gasoline for two years 
thereafter.
    In addition, Paragraph V of the order requires that unless gasoline 
sellers representing a specified volume of sales to Toledo and 
Youngstown, Ohio agree to switch to other brands, then respondents must 
divest retail gasoline stations with an equivalent volume of sales to 
an acquirer acceptable to the Commission.
    For a period of ten years from the date the proposed consent order 
becomes final, the proposed Respondents are required to provide notice 
to the Commission prior to acquiring terminal assets or gasoline 
stations located in the markets at issues.
    The proposed Respondents are required to provide to the Commission 
a report of compliance with the proposed consent order within thirty 
days following the date on which the order becomes final, every thirty 
days thereafter until the divestitures are completed, and annually for 
a period of ten years.

V. Opportunity for Public Comment

    The proposed consent order has been placed on the public record for 
sixty days for receipt of comments by interested persons. Comments 
received during this period will become part of the public record. 
After sixty days, the Commission will again review the agreement and 
the comments received and will decide whether it should withdraw from 
the agreement or make the proposed consent order final.
    By accepting the proposed consent order subject to final approval, 
the Commission anticipates that the competitive problems alleged in the 
compliant will be resolved. The purpose of this analysis is to invite 
public comment on the proposed consent order, including the proposed 
sale of terminal assets to Williams, in order to aid the Commission in 
its determination of whether to make the proposed consent order final. 
This analysis is not intended to constitute an official interpretation 
of the proposed consent order, nor is it intended to modify the terms 
of the proposed consent order in any way.

    By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 99-197 Filed 1-5-99; 8:45 am]
BILLING CODE 6750-01-M