New Mexico District Court Refuses to Block Energy Merger

Originally published June 6, 2007

The federal district court of New Mexico refused to grant the Federal Trade Commission's motion for a preliminary injunction to stop the proposed merger between Western Refining, Inc. and Giant Industries, Inc. Federal Trade Commission v. Foster, et al., No. CIV 07-352 (D.N.M. May 29, 2007). This case represents the second time in two weeks that the FTC has failed in its attempt to block a proposed energy merger, and underscores the importance in merger cases of developing evidence of credible potential market entry and demonstrating how that entry can mitigate issues that otherwise might lead to a successful merger challenge.

Western Refining is an independent crude oil refiner and marketer of refined products, operating primarily in the southwest United States. Giant Industries also is a refiner and marketer of petroleum products, with substantial operations (including two oil refineries) in New Mexico. On November 13, 2006, Western Refining and Giant Industries announced an agreement under which Western would acquire all of the outstanding shares of Giant.

After a nearly five-month investigation, the FTC sought and received a temporary restraining order preventing consummation of the merger. The FTC then moved for a preliminary injunction that would enjoin the parties from completing the merger until after an administrative trial.

After a five-day hearing, United States District Judge James Browning denied the motion for the preliminary injunction and dissolved the TRO, holding that the FTC failed to show that the merger would eliminate competition in the bulk supply of gasoline to northern New Mexico. The key issue to the judge's decision was the potential for market entry or expansion by competitors.

The relevant product market was defined as bulk gasoline and the relevant geographic market, while disputed, was recognized to be northern New Mexico, including Albuquerque. However, the key factual dispute turned on which competitors could be considered part of the market. The court determined that refiners located on the Gulf Coast, bulk gasoline supply delivered by trucks, and other potential entrants should be included in the market. Based on its view of the totality of market participants, the court held that the combined Western/Giant entity would have a market share of under 6 percent (the FTC's expert calculated the market share to be 18.6 percent). The court, based on its view of market...