FTC Clears Magellan's $492.4 Million Acquisition of Shell Assets

Under the terms of a consent agreement with the Federal Trade Commission announced today, Magellan Midstream Partners, L.P. (Magellan) will be able to complete its proposed $492.4 million acquisition of selected pipeline and terminal assets from Royal Dutch Petroleum Company (Shell), provided it divests a refined petroleum products terminal in Oklahoma City, Oklahoma, within six months to a Commission-approved buyer. To protect competition pending the divestiture, Magellan also is required to hold the Oklahoma City terminal assets separate and maintain their viability until they can be sold. If Magellan is unable to divest the terminal within six months of consummation of the deal, the FTC may appoint a trustee to accomplish the sale.

"Absent the relief provided by the Commission's order, after this acquisition there would be less competition for gasoline terminaling services in the Oklahoma City area," said Susan A. Creighton, Director of the FTC's Bureau of Competition. "The order protects competition and consumers by ensuring that Magellan does not own two of the terminal facilities in this market after the deal is completed."

Parties to the Transaction

Magellan, a publicly traded limited partnership owned 64 percent by public shareholders and 36 percent by Magellan Midstream Holdings, L.P., is primarily engaged in the storage, transportation, and distribution of refined petroleum products and ammonia. Its assets include a petroleum products pipeline and terminal system serving the mid-continent region of the United States, marine terminals along the Gulf Coast and New York Harbor, inland petroleum products terminals in the southeastern United States, and an ammonia pipeline system in the mid-continent region. In 2003, Magellan had total revenues of approximately $485 million and total assets of nearly $1.2 billion.

Shell is a diversified multinational energy company engaged in the manufacturing, refining, distribution, transportation, terminaling, and marketing of a range of petroleum products, including gasoline, diesel fuel, jet fuel, motor oil, lubricants, petrochemicals, and other products. Shell Oil Company is the United States operating arm for the Royal Dutch/Shell Group of companies, which is owned 60 percent by Royal Dutch Petroleum Company of the Netherlands and 40 percent by The Shell Transport and Trading Company, p.l.c. of the United Kingdom. For 2003, Shell reported total revenues of more than $268 billion and total assets of approximately $124 billion.

On June 23, 2004, Magellan and Shell signed a $492.4 million purchase and sales agreement, through which Magellan would acquire a package of pipelines and terminals in the Midwestern United States from Shell, including a refined petroleum products terminal in Oklahoma City that supplies light petroleum products, such as gasoline and diesel fuel.

The FTC's Complaint

According to the Commission's complaint, the proposed transaction would eliminate competition in violation of the FTC Act and the Clayton Act, as amended, in a relevant market that consists of the terminaling of gasoline, diesel fuel, and other lightweight petroleum products in the Oklahoma City Metropolitan Area. The complaint charges that marketers and other wholesale buyers of gasoline, diesel fuel, and other lightweight petroleum products have no effective alternative to terminals located within this area, and that because of costs and delivery logistics, terminals located outside of the Oklahoma City Metropolitan Area are too far away to supply buyers in that area.

The complaint states that Magellan and Shell are actual and potential competitors in the supply of terminaling services for gasoline, diesel fuel, and other lightweight petroleum products in this area. The market for terminaling services in the Oklahoma City Metropolitan Area is already highly concentrated, according to the FTC, and would become significantly more concentrated absent divestiture relief. Further, entry into the relevant product market is unlikely, and even if it were to occur, it would be neither timely nor sufficient to mitigate the alleged anticompetitive effects of Magellan's acquisition.

The FTC contends that if the proposed transaction were consummated, competition in the supply of terminaling services for gasoline, diesel fuel, and other lightweight petroleum products in the Oklahoma City Metropolitan Area would be substantially lessened. This would occur through the elimination of direct competition between Magellan and Shell in the market for terminaling services in the Oklahoma City Metropolitan Area and an increase in the likelihood of collusion or coordinated interaction in the post-merger environment. The result could be increased prices for gasoline, diesel fuel, and other light petroleum products.

The Consent Order

To address the alleged likely anticompetitive effects of the proposed transaction, the consent order requires Magellan to divest the Shell Oklahoma City terminal to a Commission-approved buyer, at no minimum price, within six months after the acquisition is consummated. To ensure the interim viability of the terminal and to ensure that any acquirer will have an

opportunity to enter into an agreement with Shell for the Shell volumes at the terminal, the order requires Shell to use the Oklahoma City terminal for all of its branded and unbranded refined petroleum requirements in the Oklahoma City area until three months after it is divested. In addition, the order prohibits Magellan and Shell for three months after the divestiture from maintaining, or attempting to maintain, any agreement related to the movement or transfer of any of Shell's refined petroleum products from the Oklahoma City terminal to any other terminaling facility owned, leased, or operated by Magellan. The companies also are prohibited from discussing or negotiating any such agreements with each other.

The order further provides that if the Oklahoma City terminal has not been divested within the allotted time, the Commission may appoint a trustee to accomplish the sale.

Hold Separate Order

The consent order also contains an order to hold separate and maintain assets to ensure that the Oklahoma City terminal will be maintained as a competitive asset, separate and apart from Magellan, pending the divestiture. The hold separate order requires Magellan to contract with Shell to manage the Oklahoma City terminal independently from Magellan's other operations. Shell will report directly and exclusively to a hold separate trustee regarding the terminal's operation, and is required to keep confidential information related to the terminal from Magellan employees, except as permitted by the order. The hold separate order terminates either: 1) within three business days after the FTC withdraws its acceptance of the consent order; or 2) the day after the Oklahoma City terminal is divested, in the manner described in the consent order.

The Commission vote to accept the consent agreement and place a copy on the public record was 4-0-1, with Chairman Deborah Platt Majoras recused. The order will be subject to public comment for 30 days, until November 1, 2004, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

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, consent agreement, and an analysis 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. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC File No.: 041-0164)