[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
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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
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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