Exxon Corporation, et al.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 971-0007]

Exxon Corporation, 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 October 26, 1998.

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 Joseph Krauss, FTC/H-

374, Washington, DC 20580. (202) 326-2932 or 326-2713.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 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

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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 August

20, 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 Section 4.9(b)(6)(ii) of the

Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted, subject

to final approval, an Agreement Containing Consent Order

(``Agreement'') from Exxon Corporation (``Exxon''), and from The Shell

Petroleum Company Limited and Shell Oil Company (collectively

``Shell'').

The proposed Consent Order has been placed on the public record for

sixty (60) days for reception of comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

Agreement and the comments received and will decide whether it should

withdraw from the Agreement or make final the Agreement's proposed

Order.

Both Exxon and Shell develop, manufacture, market and sell

additives used in the production of fuels and lubricants, including

viscosity index improvers used in lubricants for crankcase applications

(``motor oil'' and ``engine oil''.) Viscosity index improvers (``VII'')

(also known as ``viscosity modifiers'') are added to motor oil to

improve the ability of the motor oil to flow properly. The viscosity of

a fluid is its internal resistance to flow; the higher the viscosity,

the more resistance to flow. The viscosity of lubricating oil is

affected by temperature, higher temperatures lowering the viscosity.

Motor oil must have sufficient viscosity to adhere to the internal

surfaces of the engine even after the engine temperature rises and

reduces the oil's viscosity. Motor oil must also have low enough

viscosity to flow through the engine when the engine is cold,

particularly in winter weather. Viscosity index improvers give motor

oil the ability to have the appropriate high viscosity at high

temperatures and the appropriate low viscosity at low temperatures.

The market for the viscosity index improvers in North America is

highly concentrated. Exxon and Shell collectively account for over one-

half of the sales of VII for use in motor oil in North America.

On July 10, 1996, Exxon and Shell announced an intention to form a

joint venture to own and operate their businesses engaged in the

development, manufacture, marketing and sale of additives used in the

production of fuels and lubricants (the ``Joint Venture''). Among other

products, the Joint Venture proposed to include the portions of the

businesses of Exxon and Shell that are in the viscosity index improver

business.

The Proposed Complaint

The proposed complaint alleges that the proposed acquisition may

substantially lessen competition in the development, manufacture,

marketing and sale of viscosity index improvers. The proposed complaint

also alleges that North America is the relevant geographic market for

evaluating the Joint Venture's effect on the viscosity index improver

market.

The proposed complaint alleges that Exxon and Shell account for

over one-half of the sales of VII in the relevant market. The complaint

further alleges that the proposed transaction would increase the

likelihood of or facilitate collusion or coordinated interaction

between the Joint Venture and the remaining competitors in viscosity

index improvers.

The proposed complaint alleges that entry into the alleged market

would not be timely, likely, and sufficient to deter or offset the

adverse effects of the Joint Venture on competition in these markets.

Entry into the market for viscosity index improvers requires developing

a viscosity index improver that meets industry standards. This is

difficult and time consuming and takes over two years. Entry into the

market for viscosity index improvers also requires that the entrant

either build a plant to manufacture synthetic rubber or find an

operating plant that will supply the new entrant synthetic rubber that

can be used for viscosity index improver for motor oil. The proposed

complaint alleges that building a new manufacturing facility for the

production of synthetic rubber of the type that can be used in the

production of VII would take over two years and that there are few, if

any, producers of synthetic rubber of the types that can be used for

VII that could supply a new entrant.

The Proposed Order

The proposed Order would remedy the alleged violation by preserving

the competition that would otherwise be lost as a result of the

formation of the Joint Venture, by requiring the sale of Exxon's

viscosity index improver business to a Commission-approved buyer prior

to consummation of the Joint Venture or within 6 months of signing the

Agreement. Exxon has come forward with a prospective purchaser, Chevron

Chemical Company LLC (``Chevron''), a subsidiary of Chevron Oil

Company. The Oronite division of Chevron already develops,

manufactures, markets and sells lubricant additives. Exxon and Chevron

have negotiated an agreement of sale. Under the proposed order, Exxon

may either proceed to sell its viscosity index improver business to

Oronite, including in the sale those assets that Oronite and Exxon have

negotiated, or sell to another buyer that the Commission approves. If

Exxon sells to another buyer, it must include in the sale the assets

enumerated in the proposed Order. Another buyer that, unlike Chevron,

does not have a division already producing additives for lubricants may

need assets that are part of Exxon's viscosity index improver business

that Chevron did not need.

Under the proposed Order, Exxon may complete the proposed

divestiture to Chevron and then consummate the Joint Venture with Shell

once the Commission has accepted the Agreement. If Exxon completes the

sale to Chevron before the proposed Order is made final, the proposed

Order requires that Exxon rescind the sale to Oronite if the Commission

determines after the public comment period that the proposed sale to

Oronite is not appropriate relief. In such a situation, if Exxon and

Shell have consummated the Joint Venture, the proposed Order requires

that the assets then be held under a hold separate agreement until they

can be divested. If the divestiture is not completed within six months

of the date the parties signed the Agreement, then the Commission may

appoint a trustee to effect the sale of the assets.

The proposed Order does not require the sale of a plant to

manufacture synthetic rubber to make viscosity index improvers. It does

require that if Exxon sells to a party other than Oronite, it provides

the purchaser a supply of synthetic rubber. Moreover, if Exxon

completes the proposed sale to Chevron, Exxon may not sell its

synthetic rubber for viscosity index improver applications to parties

other than

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Chevron, except to the extent that Exxon's proposed sales agreement

with Chevron would permit such sales. Finally, the proposed Order

contains a firewall provision prohibiting the transfer of competitively

sensitive information from Chevron, through Exxon, to the Joint Venture

or to Shell.

The purpose of this analysis is to facilitate public comment on the

proposed Order. This analysis is not intended to constitute an official

interpretation of the Agreement or the proposed Order or in any way to

modify the terms of the Agreement or the proposed Order.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 98-22893 Filed 8-25-98; 8:45 am]

BILLING CODE 6750-01-M