The FTC says the takeover is anti-competitive. BP Amoco says it is being penalized to make a statement.
Moving to stem the trend of huge consolidation in the oil industry, the federal government decided Wednesday to try to block BP Amoco's $30-billion proposed acquisition of Atlantic Richfield Co.
By a vote of 3-2, the Federal Trade Commission chose to seek a preliminary injunction against the deal. Commission officials asserted, and the companies denied, that the merger would be strongly anti-competitive and could lead to significant rises in the price of crude oil for refiners in California and other West Coast states, where prices at the gas pump far exceed the national average.
BP Amoco and Arco together control about 70 percent of the production of oil on Alaska's North Slope, much of which ends up in the gas tanks of West Coast consumers. Last year, the companies agreed with Alaska state officials to reduce their control to about 55 percent.
Commission officials said that the FTC's vote made the proposed merger the largest in American history both in terms of revenue _ $100-billion in the year ending Sept. 30 _ and purchase price to be challenged by the government. It is the first in the oil industry since the commission blocked Mobil Corp.'s $6.5-billion bid to buy Marathon Oil in the early 1980s.
"This deal will cement market power and harm competition by creating a significant risk that crude oil prices would be higher on the West Coast than they would without the deal," said Richard Parker, the director of the bureau of competition at the commission. "What this case is about at a fundamental level is a dominant firm that is already exercising market power buying the firm, Arco, that is the one threat to that market power.
"Competition in the past has caused these firms to claw each other's eyes out to get oil in Alaska," Parker said at a news conference Wednesday. "Now that competition is disappearing unless we are able to obtain relief in court."
Executives at the oil companies have said that prices on the West Coast are not set by Alaska production, but by the world market, and that the government was unfairly penalizing their deal to make a broader statement about consolidation in an industry which has seen Exxon swallow Mobil, BP purchase Amoco, and Texaco enter into a joint marketing venture with Shell.
The executives also said that the government had rejected what they called reasonable offers to divest many assets _ including the rough equivalent of all Arco's Alaskan production _ to eliminate the problems raised by antitrust lawyers.
"It is absurd to argue that the price of oil can be controlled by any company, country or agency in today's market," said Youssef Ibrahim, a vice president at BP Amoco USA. "Alaska crude oil represents about 28 percent of the oil refined on the West Coast. What the government is suggesting is that we can push around an oil market whose producers include Saudis, Venezualans, Mexicans and California. Can we do that? Of course not."
The case will now move to Federal District Court in San Francisco, where lawyers for the commission, along with state officials from Oregon and Washington, will file papers asserting that the deal violates the Clayton Antitrust Act and seek a preliminary injunction to prevent the deal from closing.
Whichever side loses that fight may appeal the decision. Additionally, a second trial may begin at any time before an administrative law judge over the merits of the corporate combination.
Parker said the government sought the injunction for three reasons.
The merger, he said, would reduce competition by refiners that use Alaskan crude oil; it would also substantially diminish the quality of bidding among oil companies that want to lease and develop Alaskan lands owned by the state and federal government. Finally, he contended, the deal would enable BP Amoco and Arco to manipulate the price of oil futures because the companies control a major crude oil marketing hub in Cushing, Okla., that is used to store West Texas Intermediate crude, the most actively traded futures contract on the New York Mercantile Exchange.
FTC challenges to corporate deals recently have usually forced the companies involved to drop their plans to merge. But BP Amoco has vowed to confront the agency in court and complete the acquisition.