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

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