The Federal Trade Commission has accepted a proposed consent order that would remedy the likely anticompetitive effects of the proposed $27 billion merger of BP Amoco p.l.c. (BP Amoco) and Atlantic Richfield Company (ARCO). Under the terms of the order, BP Amoco would be required to divest all of ARCO's assets relating to oil production on Alaska's North Slope (ANS) to Phillips Petroleum Company (Phillips) or another Commission-approved purchaser. With limited exceptions, the divestitures must take place within 30 days. BP Amoco also would have to divest all ARCO assets related to its Cushing, Oklahoma crude oil business within four months.
"The sweeping wholesale divestitures called for by the consent order resolve the competitive concerns that initially led the Commission to seek a preliminary injunction to block the proposed transaction," said Richard Parker, Director of the FTC's Bureau of Competition. "Through productive negotiations with the defendants, the Commission achieved complete relief in this complex, multifaceted merger without the need for continued litigation."
According to the Commission's complaint, the proposed transaction would violate Section 7 of the Clayton Act, as amended, and Section 5 of the Federal Trade Commission Act, as amended, by lessening competition in the following markets: 1) the production, sale and delivery of ANS crude oil; 2) the production, sale and delivery of crude oil used by targeted West Coast refiners; 3) the production, sale and delivery of all crude oil used on the West Coast; 4) the purchase of exploration rights on the Alaskan North Slope; 5) the sale of crude oil transportation on the Trans-Alaska Pipeline System (TAPS); 6) the development for commercial sale of natural gas on the Alaskan North Slope; and 7) the supply of crude oil pipeline transportation to, and crude oil storage in, Cushing, Oklahoma.
Under the proposed order, BP Amoco would be required to divest ARCO's complete, free-standing businesses, including oil and gas interests, tankers, pipeline interests, real estate exploration data and selected long-term supply agreements. These assets specifically include:
a) ARCO Alaska, Inc.; b) ARCO Transportation Alaska, Inc.; c) ARCO Marine, Inc.; d) ARCO Marine Spill Response Company; e) Union Texas Alaska assets of Union Texas Petroleum Holdings, Inc.; f) Union Texas Alaska, LLC; g) Kuparuk Pipeline Company; h) Oliktok Pipeline Company; i) Alpine Pipeline Company; j) Cook Inlet Pipeline Company; k) All Alaska oil and gas leases; l) AMI Leasing Inc.; m) ARCO Beluga, Inc.; n) ARCO's office complex in Anchorage; o) intellectual property; p) patents; q) seismic data; r) ship construction contracts; s) customer and vendor lists; t) ARCO rewards; and u) long-term supply agreements entered between BP Amoco and several West Coast refiners. Most of the ARCO Alaska assets must be divested within 30 days of the signed order, and all assets must be divested within six months. If the assets are not divested on time, the Commission may appoint a trustee (at the respondents' expense) to achieve these divestitures.
To ensure that ARCO employees remain with the company after the transaction and become available to work for Phillips, the proposed consent order also would require that BP Amoco not solicit any ARCO employee for employment unless that employee was terminated by Phillips, that BP Amoco vest all current and future pension benefits, and that it pay a bonus of not less than 35 percent of the base salary for certain key ARCO employees.
To address the competitive concerns surrounding Cushing, Oklahoma, the proposed order would require that BP Amoco divest the following assets to an FTC-approved purchaser(s) within four months: a) ARCO's 50 percent interest in the Seaway Pipeline Company, a partnership with subsidiaries of Phillips; b) ARCO's crude oil terminal facilities in Cushing and Midland, Texas, including the line-transfer and pumpover business at each location; c) ARCO's undivided ownership interest in the Rancho pipeline, a 400-mile, 24-inch diameter crude oil pipeline from West Texas to Houston; d) ARCO's undivided ownership interest in the Basin Pipeline, a 416-mile crude oil pipeline running from Jal, New Mexico to Wichita Falls, Texas and then on to Cushing; and e) the ARCO West Texas Trunk System of receipt and delivery pipelines, which is centered around Midland.
The consent package also contains an Order to Hold Separate designed to: a) preserve the competitive viability of the assets pending divestiture; b) assure that no material confidential information is exchanged between BP Amoco and the held-separate business; and c) prevent interim harm to competition pending the divestitures. Under the terms of this Order, the Commission can appoint an asset maintenance trustee to monitor the assets to be divested and ensure compliance with its provisions. This Order applies to both the Alaskan and the Cushing assets to be divested.
Finally, for 10 years after it becomes final, the consent order would prohibit the respondents from reacquiring, either directly or indirectly, any interests in the assets they are required to divest, without first giving notice to the Commission. They also would be required to provide the Commission with a report of their compliance with the order within 30 days after it becomes final and every 60 days thereafter, until in full compliance with its requirements.
A summary of the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 30 days, until May 15, 2000, after which the Commission will decide whether to make it final. Comments should be sent to the Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
The Commission vote to accept the proposed consent order and Order to Hold Separate and Maintain Assets was 5-0.
Writing in the majority, Commissioners Sheila Anthony, Thomas B. Leary and Orson Swindle issued a separate statement explaining that they supported the structural relief in the proposed consent agreement because it would entirely eliminate the overlap between BP and ARCO that allegedly would create a competitive problem. However, unlike their colleagues, they were unwilling to impose an export restriction designed to remedy BP's premerger exports, which were not alleged to be unlawful or to have harmed competition or consumers. Commissioners Anthony, Leary and Swindle concluded that an "over-regulatory" export restriction would be "unnecessary, unenforceable and otherwise inappropriate" relief.
Chairman Robert Pitofsky and Commissioner Mozelle Thompson issued a joint statement, concurring in part and dissenting in part with the order, in which they voiced their full support for the structural relief obtained by the Commission, but expressed their disappointment that the order would not prevent BP or the buyer of ARCO's assets from engaging in exports at a loss in Asia (relative to the profit that could have been obtained on the same crude oil within PADD V) designed to maintain ANS crude spot prices on the West Coast - behavior that was alleged and described in the Commission's original complaint and memorandum supporting the complaint.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, proposed consent agreement, and an analysis of the proposed consent order to aid public comment, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 991-0192)