Increasing Focus On Competition In Energy Markets: FTC Approves Complaint Seeking To Block Acquisition Of Giant Industries, Inc.

By William S. D'Amico and David T. Blonder

On April 10, 2007, the Federal Trade Commission (FTC) approved a complaint in opposition to Western Refining, Inc.'s (Western) acquisition of Giant Industries, Inc (Giant). The proposed acquisition, which is valued at approximately $1.4 billion, would combine two of the five bulk suppliers of light petroleum products to northern New Mexico.

The FTC voted 5-0 to initiate the complaint and the Agency's staff has been authorized to seek a preliminary injunction and temporary restraining order. In the complaint, the Commission alleges that consummation of the merger agreement would violate Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, and Section 7 of the Clayton Act, 15 U.S.C. 18. The FTC contends that the merger would reduce competition in the bulk light petroleum products market of northern New Mexico, eliminate any incentives for Giant to increase production in its two New Mexico refineries, and increase concentration of the already-concentrated New Mexico market. The FTC further argues that new entry into the petroleum market is unlikely to alleviate the anticompetitive effects of the merger. Presumably, the FTC will condition future approval of the merger on the parties' assent to divestitures in the New Mexican market.

In response to the FTC's complaint, Giant and Western have claimed that a merger of the two companies will create refinery efficiencies that will increase production. In addition, according to the companies, the merger will enhance competition in the already-competitive New Mexican petroleum market and will reduce the risk of petroleum shortages. The companies have also noted that the proposed merger implicates less than 1.5 percent of U.S. refining capacity. Based on the relatively small size of the merger and its perceived benefits, the companies contend that the merger will promote competition in New Mexico's petroleum market. In a recent press release, Giant and Western reiterated their commitment to consummating the merger and voiced their intent to "vigorously challenge the FTC in court."

Implications of the FTC's Complaint

The FTC's announcement comes on the heels of the Commission's challenge to another energy-related transaction, Equitable Resources, Inc.'s acquisition of Peoples Natural Gas Co. In its challenge to the Peoples Natural Gas Co. acquisition, the Commission voiced similar concerns about the effect of the merger on the market for...

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