[Federal Register Volume 72, Number 20 (Wednesday, January 31, 2007)]
[Notices]
[Pages 4508-4511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-1479]


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FEDERAL TRADE COMMISSION

[File No. 061 0197]


TC Group L.L.C., Riverstone Holdings LLC, Carlyle/Riverstone 
Global Energy and Power Fund II, L.P., and Carlyle/Riverstone Global 
Energy and Power Fund III, L.P.; Analysis of Proposed Agreement 
Containing Consent Orders 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 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 February 26, 2007.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``TC Group, et al., File No. 061 0197,'' to 
facilitate the organization of comments. A comment filed in paper form 
should include this reference both in the text and on the envelope, and 
should be mailed or delivered to the following address: Federal Trade 
Commission/Office of the Secretary, Room 135-H, 600 Pennsylvania 
Avenue, NW., Washington, DC 20580. Comments containing confidential 
material must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with Commission Rule 4.9(c). 16 CFR 
4.9(c) (2005).\1\ The FTC is requesting that any comment filed in paper 
form be sent by courier or overnight service, if possible, because U.S. 
postal mail in the Washington area and at the Commission is subject to 
delay due to heightened security precautions. Comments that do not 
contain any nonpublic information may instead be filed in electronic 
form as part of or as an attachment to e-mail messages directed to the 
following e-mail box: [email protected].
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    \1\ The comment must be accompanined by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See Commission Rule 4.9(c), 
16 CFR 4.9(c).
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    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at http://www.ftc.gov. As a matter of discretion, the FTC 
makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments on 
the FTC Web site. More information, including routine uses permitted by 
the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Dennis F. Johnson, Bureau of 
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 
326-2712.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 of 
the Commission 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 thirty (30) 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 January 25, 2007), on the World Wide Web, at http://www.ftc.gov/os/2007/01/index.htm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission, subject to its final approval, has 
accepted for public comment an Agreement Containing Consent Orders 
(``Consent Agreement'') with TC Group, L.L.C. (``Carlyle''), Riverstone 
Holdings LLC (``Riverstone''), Carlyle/Riverstone Global Energy and 
Power Fund II, L.P. (``CR-II''), and Carlyle/Riverstone Global Energy 
and Power Fund III, L.P. (``CR-III''). The proposed Consent Agreement 
remedies the anticompetitive effects that otherwise would be likely to 
result from the acquisition described herein.
    On August 28, 2006, Kinder Morgan, Inc. (``KMI'') announced that it 
had entered into a definitive merger agreement pursuant to which a 
group of investors, including CR-III, a private equity fund managed and 
controlled by Carlyle and Riverstone, and Carlyle Partners IV, L.P. 
(``CP-IV''), an affiliate of Carlyle, would acquire all outstanding 
shares of KMI for approximately $22 billion, including the assumption 
of approximately $7 billion of debt (the ``Acquisition'').
    Carlyle and Riverstone have worked together to form, manage, and 
operate several private equity funds that focus on energy-related 
investments. One of these funds is CR-III, which, through the 
Acquisition, will acquire approximately 11.3% of the equity in KMI. In 
addition, CP-IV will also acquire approximately 11.3% of the equity in 
KMI. Another fund that is jointly controlled and managed by Carlyle and 
Riverstone, CR-II, holds interests in various energy firms, including, 
as relevant here, a 50% interest in the general partner that controls 
Magellan Midstream Partners, L.P. (``Magellan''), a midstream terminal 
and pipeline company that competes

[[Page 4509]]

with KMI in various terminaling and pipeline operations.
    Without some form of relief, the proposed Acquisition is likely to 
result in anticompetitive effects from combining KMI and Magellan under 
Carlyle and Riverstone. KMI and Magellan compete directly with each 
other in at least eleven terminal markets in the southeastern United 
States. These markets include: Birmingham, Alabama; Albany and Atlanta 
(Doraville), Georgia; North Augusta and Spartanburg, South Carolina; 
Charlotte, Greensboro, and Selma, North Carolina; Knoxville, Tennessee; 
and Roanoke and Richmond, Virginia. In addition, KMI and Magellan are 
two of only three significant ``independent'' (i.e. not owned by a 
refiner) terminaling companies in the Southeast. A reduction in 
competition, particularly competition among independent terminaling 
companies, may result in higher prices of gasoline and other light 
petroleum products, reduced supply, or other anticompetitive effects in 
these markets.
    CR-II has representatives on Magellan's board and has significant 
veto power over Magellan's activities. Carlyle and CR-III also will 
have the right to appoint one director each to the eleven-member KMI 
board. Carlyle and Riverstone therefore may have the ability to reduce 
competition between the terminals owned by KMI and Magellan through 
their board representation on both competitors, by exercising veto 
power at Magellan, by exchanging competitively sensitive non-public 
information between KMI and Magellan, and by using information learned 
from one firm in connection with their activities on the other.
    The proposed Consent Agreement effectively remedies these possible 
anticompetitive effects by, among other things, prohibiting CR-II from 
having representation on any Magellan board, prohibiting the 
Respondents from influencing or attempting to influence Magellan's 
business activities, and requiring that Respondents implement firewalls 
designed to prevent the exchange of competitively sensitive information 
between Magellan and KMI.

I. The Proposed Respondents and Other Relevant Entities

A. Carlyle and Riverstone

    Founded in 1987, Carlyle is a private equity firm based in 
Washington, DC, with more than $44.3 billion under management. Carlyle 
invests in buyouts, venture and growth capital, real estate, and 
leveraged finance in Asia, Australia, Europe, and North America, 
focusing on aerospace and defense, automotive and transportation, 
consumer and retail, energy and power, healthcare, industrial, 
technology and business services, and telecommunications and media. 
Carlyle's investors include public and private institutional investors 
and high net worth individuals.
    Founded in 2000, Riverstone Holdings LLC is a $6 billion private 
investment firm that invests solely in the energy and power sectors. 
Riverstone has partnered with Carlyle to create a series of energy-
focused investment funds, which include CR-II and CR-III.
    Carlyle and Riverstone launched CR-II in 2002, and in the last four 
years the fund has invested more than $1 billion in transactions in the 
energy and power sector. Currently, CR-II holds interests in more than 
a dozen energy firms, including Magellan. In 2005, Carlyle and 
Riverstone launched CR-III, with more than $3.8 billion in capital. CR-
III, through the Acquisition, proposes to acquire shares that would 
constitute approximately 11.3% of KMI. CP-IV, another fund controlled 
and managed by Carlyle, also plans to acquire shares that would 
constitute approximately 11.3% of KMI, so that Carlyle and Riverstone 
together would hold approximately 22.6% of the equity of KMI.

B. KMI

    KMI is one of the largest energy transportation, storage, and 
distribution companies in North America. Through various operating 
affiliates, KMI owns or operates pipelines that transport natural gas, 
crude oil, petroleum products and carbon dioxide, and terminals that 
store, transfer, and handle energy products such as gasoline and other 
light petroleum products, including terminals in the southeastern 
United States. KMI holds the general partner interest of Kinder Morgan 
Energy Partners, L.P. (``KMP''), which is one of the largest publicly 
traded energy limited partnerships in the United States.

C. Magellan

    Magellan Midstream Partners, L.P., is a publicly traded limited 
partnership that is primarily engaged in the storage, transportation, 
and distribution of refined petroleum products and ammonia. Its assets 
include an 8,500 mile petroleum products pipeline system, including 
petroleum product terminals serving the mid-continent region of the 
United States, and other inland petroleum products terminals located in 
the southeastern United States, mostly along the Colonial Pipeline. 
Magellan has a complex organizational structure. CR-II holds a 50% 
interest in MGG Midstream Holdings GP, LLC--the general partner that 
ultimately controls Magellan--as well as certain limited partnership 
interests. Interests affiliated with Madison Dearborn Partners 
(``MDP''), another investment firm, hold the other 50% interest. CR-II 
and MDP have the right to designate two representatives each on a four-
member Board of Managers, and each has veto power over actions taken by 
the Board of Managers. CR-II and MDP also have two directors each on 
the boards of the other general partners that control Magellan.

II. Market Structure and Competitive Effects

    Relevant markets in which to analyze the effects of the Acquisition 
are the terminaling of gasoline and other light petroleum products in 
eleven metropolitan areas in the southeastern United States, including 
Birmingham, Alabama; Albany and Atlanta (Doraville), Georgia; North 
Augusta and Spartanburg, South Carolina; Charlotte, Greensboro, and 
Selma, North Carolina; Knoxville, Tennessee; and Roanoke and Richmond, 
Virginia. Terminals are essential to the efficient flow of gasoline and 
other products from refineries to retail stations and have no effective 
substitutes. A terminal is the only method of safely and economically 
receiving, storing, and distributing bulk supplies of gasoline and 
other refined products in the large quantities needed for delivery to 
retail stations. Large quantities of gasoline and other light petroleum 
products can be shipped economically over long distances only by means 
of pipelines or marine vessels, not by trucks. Local deliveries to 
retail stations and commercial accounts, however, can be handled 
effectively only by tank trucks. Terminals serve as the link between 
pipelines that transport products from refineries and local modes of 
transportation.
    Terminals typically serve limited geographic areas. Although the 
size of a terminal's service area may vary from one metropolitan area 
to another based on the relative proximity of terminals, traffic 
congestion, natural barriers, and other factors impacting tank truck 
delivery, terminals often are clustered near each other and compete 
primarily to supply a nearby metropolitan area. The eleven local 
metropolitan areas in which both KMI and Magellan own terminals are 
relevant geographic markets in which to assess the possible effects of 
the Acquisition.
    Each of the eleven markets already is either moderately or highly

[[Page 4510]]

concentrated prior to the Acquisition, and an acquisition that combines 
KMI and Magellan through partial common ownership or control would 
significantly increase those levels of concentration. Moreover, KMI and 
Magellan are two of only three major independent terminaling systems in 
the Southeast--the third being TransMontaigne. Independent shippers and 
marketers frequently depend on independent terminals to obtain 
competitive access to certain markets because proprietary terminals are 
sometimes either not available to them or only available on a limited 
basis. In a number of the relevant markets, KMI and Magellan are either 
the only independent terminals available or two of a small number of 
independent terminals in service.
    As a result, a direct combination of KMI and Magellan would remove 
a significant supplier of terminal services in markets where customers 
have few competitive alternatives. The combination would make the 
exercise of unilateral market power more likely because many customers 
view KMI's and Magellan's terminals as their first and second choices, 
and the other suppliers in the market are likely to be either incapable 
of replacing or unwilling to replace the competition lost as a result 
of the combination. Indeed, there is evidence that when customers have 
few independent terminal options, they can have difficulty obtaining 
storage and terminaling services and pay higher prices for those 
services that are available. Such a transaction also would increase the 
likelihood of coordinated interaction because of the small number of 
competitors remaining in many of the markets at issue and because the 
transaction would remove one of the few remaining independent 
participants that may serve as an important competitive influence.
    Although the proposed transaction will not directly merge KMI and 
Magellan, it will have the effect of combining the two companies 
through partial common ownership. Carlyle and Riverstone, through their 
funds, will acquire a combined 22.6% interest in KMI, in addition to 
their existing 50% interest in the general partner controlling 
Magellan. After the transaction, it is likely that Carlyle and 
Riverstone would reduce competition between KMI and Magellan through 
their board representation on both competitors, by exercising veto 
power at Magellan, by exchanging competitively sensitive non-public 
information between KMI and Magellan, and by using information learned 
from one firm in connection with their activities on the other.

III. Entry

    Entry into the market for terminaling of gasoline and other light 
petroleum products in each of the identified markets in the 
southeastern United States is unlikely to deter or counteract the 
likely anticompetitive effects. Entry is difficult and time-consuming 
and potential entrants would face substantial barriers in the form of 
permit requirements and land use restrictions.

IV. Terms of the Proposed Agreement Containing Consent Orders

    The proposed Consent Agreement effectively remedies the 
Acquisition's alleged anticompetitive effects by, among other things, 
prohibiting representatives of Carlyle or Riverstone from serving on 
any of the Magellan boards, prohibiting Carlyle and Riverstone from 
exerting control or influence over Magellan as long as they hold an 
interest in or can influence KMI, and requiring Respondents to set 
firewalls to prevent the exchange of competitively sensitive non-public 
information. The purpose of the Consent Agreement is to ensure that KMI 
and Magellan are operated independently of, and in competition with, 
each other, and to remedy the lessening of competition resulting from 
the Acquisition as alleged in the Commission's Complaint.

A. Proposed Respondents' Current and Future Magellan Investments Must 
Be Passive

    In order to achieve the purposes of the Consent Agreement, 
Paragraph II.A. of the Commission's proposed Decision and Order 
(``Order'') prohibits the proposed Respondents from consummating the 
Acquisition unless and until (1) they have removed all of their 
appointed or elected agents from all Magellan boards, and (2) they have 
agreed with MDP that they will remove such directors and will no longer 
have the right to have any representation on any Magellan board. 
Paragraph II.B of the proposed Order provides that as long as either 
Carlyle, Riverstone, or CR-III holds any interest in KMI, has the 
ability or right to elect or appoint a KMI director, or has the right 
to obtain non-public information about KMI, the proposed Respondents 
shall not: (1) Elect or appoint a director to any Magellan board, (2) 
have a director on any Magellan board, (3) influence or attempt to 
influence, directly or indirectly, Magellan (with exceptions that would 
allow Respondents to monitor certain actions of their partner MDP in 
Magellan entities that are not directly involved in the operation or 
management of the entities engaged in Magellan's terminaling business), 
or (4) receive or attempt to receive non-public information about 
Magellan. CR-II has agreed with MDP to modify their partnership 
agreement to effectuate the removal of CR-II's representatives on the 
Magellan boards, to ensure that CR-II does not have the ability through 
the general partnership agreement to elect or appoint a director to any 
Magellan board, and to otherwise comply with the terms of the Order.
    Paragraph II.B of the Order further provides that as long as either 
Carlyle, Riverstone, or CR-III holds any interest in KMI, has the 
ability or right to elect or appoint a KMI director, or has the right 
to obtain non-public information about KMI, Carlyle, Riverstone, and 
CR-II shall: (1) Not discuss with, or provide, disclose or otherwise 
make available to KMI or any KMI director any non-public information 
relating to Magellan, (2) prohibit any Magellan director from 
discussing with, or providing, disclosing or otherwise making available 
to KMI or any KMI director, directly or indirectly, any non-public 
information relating to Magellan; and (3) institute procedures and 
requirements throughout the various entities of the proposed 
Respondents to ensure that non-public information is protected as 
required by the proposed Order. This prohibition, however, would not 
prevent either David M. Leuschen or Pierre F. Lapeyre, Jr., who are 
principals with Riverstone, from serving as a director on any KMI 
board. Although these individuals have served on Magellan boards in the 
past, they are not currently directors of Magellan and have not been 
Magellan directors for several years. As a result, any direct non-
public information they might have about Magellan from serving on the 
board in the past is out of date and would be competitively 
insignificant. In addition, such individuals still are prohibited from 
divulging such information to KMI or other KMI directors.

B. KMI Information and Investment Limitations

    The Order also limits the flow of non-public KMI information to 
Magellan and places restrictions on the proposed Respondents' 
additional investments in KMI. Specifically, paragraph II.C. of the 
proposed Order provides that Carlyle, Riverstone, and CR-III shall: (1) 
Not discuss with, or provide, disclose or otherwise make available to, 
Magellan, any non-public information relating to KMI; (2) prohibit all 
KMI directors from discussing with, or providing,

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disclosing or otherwise making available to Magellan, any non-public 
information relating to KMI; and (3) institute procedures and 
requirements throughout the various entities of the proposed 
respondents to ensure that non-public information is protected as 
required by the proposed Order.
    Paragraph II.D. provides that, for the time period that Carlyle or 
Riverstone holds, directly or indirectly, any interest in Magellan, 
Carlyle and Riverstone shall not, without providing thirty days advance 
written notification, acquire any stock, share capital, equity or other 
interest in KMI other than the interest acquired through the 
Acquisition. This prior notice gives the Commission the opportunity to 
analyze additional purchases of KMI by the proposed Respondents that 
may change the economic incentives of the proposed Respondents. Advance 
notice is not required in certain limited situations where investments 
are effectively passive or where the Respondents' relative ownership 
interests would not change. In such situations, the Respondents must 
provide notification under Paragraph II.E. within ten days after such 
acquisitions.

C. Implementation Monitor

    To assure that the firewall provisions of Paragraphs II.B. and 
II.C. of the Order are properly implemented and enforced, the Order 
requires an Implementation Monitor to monitor these obligations. 
Pursuant to Paragraph IV, Mr. Kevin Sudy, an Associate Director at 
Navigant Consulting, will be appointed as the Implementation Monitor 
and shall serve until such time as he reports to the Commission that 
the parties have established adequate procedures under the terms of the 
proposed Order and the Commission notifies the parties that such 
procedures are acceptable. The Commission reserves the right 
subsequently to reinstate the monitor as necessary and appropriate to 
ensure compliance by Respondents with the terms of the proposed Order. 
The Implementation Monitor is important to assuring compliance with the 
firewall provisions of the Order.

D. Notice Provisions

    Paragraph II.E. requires the proposed Respondents to provide the 
Commission with written notice within ten days if they (1) no longer 
hold any interest in Magellan, other than a wholly passive investment, 
(2) no longer hold any interest in Magellan, (3) no longer hold any 
interest in KMI or no longer have the ability to influence or have 
representation at KMI, (4) acquire interest in interest in KMI through 
a passive investment fund, or (5) acquire any interest in Magellan.
    Paragraph III of the proposed Order requires the proposed 
Respondents to send notice of the Order, Complaint, and Analysis to Aid 
Public Comment in this matter to certain persons likely to have 
competitively sensitive information subject to this Order or likely to 
be impacted by the firewall provisions of the Order, including persons 
on the Magellan and KMI Boards of Directors, and other persons involved 
in the Acquisition of KMI.
    Paragraph V.A. requires periodic reports until the Implementation 
Monitor and the Commission are satisfied that the firewalls are 
properly established and adequately protect the flow of non-public 
information as required by the Order. Paragraph V.B. requires annual 
reports until the Order terminates in ten years.
    Paragraph VI requires the proposed Respondents to give the 
Commission prior notice of certain events that may change their 
obligations under the Order.

E. Additional Provisions

    Paragraph VII allows the Commission to have access to personnel and 
documents at the offices of the proposed Respondents with proper notice 
for purposes of determining or securing compliance with this Order.
    Paragraph VIII provides that the Order shall terminate after ten 
years.

V. The Order to Maintain Assets

    The Commission has also issued an Order to Maintain Assets in this 
proceeding, which effectively requires the proposed Respondents to 
adhere to the terms of the proposed Order during the time period 
leading up to their proposed Acquisition of equity interests in KMI.

VI. Opportunity for Public Comment

    The proposed Consent Agreement has been placed on the public record 
for thirty (30) days for receipt of comments by interested persons. The 
Commission has also issued its Complaint in this matter. Comments 
received during this comment period will become part of the public 
record. After thirty days, the Commission will again review the 
proposed Consent Agreement and the comments received and will decide 
whether it should withdraw from the Agreement or make final the 
Agreement's proposed Order.
    By accepting the proposed Consent Agreement subject to final 
approval, the Commission anticipates that the competitive problems 
alleged in the Complaint will be resolved. The purpose of this analysis 
is to invite public comment on the proposed Order to aid the Commission 
in its determination of whether it should make final the proposed Order 
contained in the Agreement. This analysis is not intended to constitute 
an official interpretation of the proposed Order, nor is it intended to 
modify the terms of the proposed Order in any way.

    By direction of the Commission, Commissioner Leibowitz 
dissenting and Commissioner Rosch recused.
Donald S. Clark,
Secretary.
 [FR Doc. E7-1479 Filed 1-30-07; 8:45 am]
BILLING CODE 6750-01-P