Mergers, Acquisitions, Divestitures, and Related Issues
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159
CHAPTER 6
MERGERS, ACQUISITIONS, DIVESTITURES, AND
RELATED ISSUES
This chapter provides an overview of the application of Section 7 of
the Clayton Act to mergers, acquisitions, and di vestitures in the gas, oil,
and electricity industries followed by the application of the Federal
Power Act (FPA), as amended by the Energy Policy Act of 2005 (EPAct
2005), over some of these same matters.
1
The Federal Trade Commission
(FTC) and the Department of Justice Antitrust Division (DOJ) each has
jurisdiction over the Section 7 review of mergers and acquisitions, and
the two agencies have jointly issued merger guidelines used as the
framework for their analysis. Although there is no formal line dividing
the review by industry, the FTC has primarily been responsible for
review if the competitive overlap is in oil or gas and the DOJ has
primarily reviewed if the overlap is in electricity. The first part of this
chapter covers the FTC’s review of oil and gas industry transactions and
the DOJ’s review of electricity transactions. The second part of the
chapter provides an overview of the Federal Energy Regulatory
Commission (FERC) review of these same matters under the FPA.
A. Review under Section 7 of the Clayton Act
Both DOJ and FTC apply Section 7 in their review of mergers and
acquisitions.
2
Section 7 prohibits transactions if “in any line of commerce
or in any activity affecting commerce in any section of the country, the
1
. 15 U.S.C. § 18; 16 U.S.C. § 824(b); Energy Policy Act of 20 05, Pub. L.
No. 109-58, 119 Stat. 594.
2
. 15 U.S.C. § 18. T he legal standards applicable to the review of mergers
and acquisitions under § 7 are extensively reviewed in other ABA
publications, such as ABA SECTION OF ANTITRUST LAW, ANTITRUST
LAW DEVELOPMENTS (7th ed. 2012). The process by which the federal
agencies review proposed transactions is discussed in detail in ABA
SECTION OF ANTITRUST LAW, THE MERGER REVIEW PROCESS: A STEP-
BY-STEP GUIDE TO FEDERAL MERGER REVIEW (4th ed. 2012); see also
ABA SECTION OF ANTITRUST LAW, MERGERS AND ACQUISITIONS:
UNDERSTANDING THE ANTITRUST ISSUES (3d ed. 2008).
160 Energy Antitrust Handbook
effect of such acquisition may be substantially to lessen competition, or
to tend to create a monopoly.”
3
To help guide this process, in August 2010, the FTC and DOJ jointly
issued the revised Horizontal Merger Guidelines (2010 Merger
Guidelines),
4
which replaced their jointly issued 1992 Horizontal Merger
Guidelines.
5
The 2010 Merger Guidelines describe the framework,
analytical techniques, and main types of evidence used by the FTC and
DOJ. The application of the 2010 Merger Guidelines requires a case -by-
case analysis of numerous factors to determine the relevant markets, to
assess the likelihood and significance of possible competitive harm and
procompetitive efficiencies.
The sections below necessarily focus on DOJ and FTC consent
orders, closing statements, and agency-issued publications because the
vast majority of their concerns regarding mergers in these energy
industries have been resolved without litigation.
1.
FTC Review of Oil and Gas Industry Transactions
Competitively priced petroleum product supplies are considered vital
to the health of the U.S. economy, and the price of gasoline—due to both
the universality of the demand for the product and the prominent way in
which the price is traditionally advertised on service station signs—
carries particular political weight.
6
The petroleum industry’s particularly
3
. 15 U.S.C. § 18. In addition, the FTC may challenge a merger or
acquisition as a violation of § 5 of the Federal Trade Commission Act,
which prohibits “unfair methods of competition.” 15 U.S.C. § 45.
4
. DOJ & FTC, HORIZONTAL MERGER GUIDELINES (2010) [hereinafter 2010
MERGER GUIDELINES], available at http://www.ftc.gov/os/2010/08/
100819hmg.pdf.
5
. DOJ & FTC, HORIZONTAL MERGER GUIDELINES (1992) (with Apr. 8,
1997 revisions), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,104.
6
. At least one FTC commissioner also has justified the heightened scrutiny
by arguing that the likelihood of anticompetitive effects from market
concentration is higher in the oil industry than in other industries due to
the homogeneity of the product, existing business practices, typical buyer
characteristics, and other factors. See Statement of Comm’r Mozelle W.
Thompson Concerning the FTC’s Me rger Enforcement Actions in the Oil
Indus. (June 2, 2004), available at http://www.ftc.gov/speeches/
thompson/mtwoilmergers.shtm. But see Statement of Comm’r Timothy J.
Muris Concerning FTC Merger Enforcement in the Oil Indus. (June 2,
Mergers, Acquisitions, Divestitures, and Related Issues 161
prominent role both in the U.S. economy and in the public’s perception
of the economy explains the FTC’s intense scrutiny of the industry.
7
a. FTC Merger Review Practice by Petroleum Industry Sector
(1) Crude Oil Exploration and Production
Exploration and production (E&P) involves competition among
firms to acquire leases or mineral rights interests, develop the reserves
and produce them for sale. E&P companies compete to obtain such
interests and rights from owners of mineral rights, private land-owners,
national oil companies and governments. In most instances, mineral
rights owners have many E&P companies vying for rights. In some
circumstances, e.g., isolated or difficult conditions, the alternatives
available to mineral rights owners may be limited. When assessing
competitive effects i n the production and sale of crude oil, “the relevant
antitrust market in which the FTC assesses the likely competitive effects
of mergers on crude oil supply ordinarily is global.”
8
Thus, merging
firms generally face significant competition from global oil companies,
local oil companies and foreign state-owned petroleum companies.
9
These factors, among others, have limited FTC enforcement action in
the E&P sector to instances in which leaseholders have limited options
2004) (disagreeing with Commissioner Thompson’s statement), available
at http://www.ftc.gov/speeches/muris/040602response.shtm.
7
. See, e.g., Oversight of the Enforcement of the Antitrust Laws: Hearing
Before the H. Comm. on the Judiciary (statement of the FTC, presented
by Chairwoman Edith Ra mirez) (“Few issues ar e more important to
consumers and businesses than the prices they pay for gasoline to run
their vehicles and energy to heat and light their homes and businesses.”) ,
available at https://www.f tc.gov/sites/default/files/documents/public_
statements/prepared-statement-federal-trade-commission-oversight-
enforcement-antitrust-laws-presented/131115antitrustlawtestimony.pdf.
8
. BUREAU OF ECONOMICS, FTC, THE PETROLEUM INDUSTRY: MERGERS,
STRUCTURAL CHANGE, AND ANTITRUST ENFORCEMENT 21 (2004)
[hereinafter PETROLEUM MERGER REPORT], available at
http://www.ftc.gov/os/2004/08/040813mergersinpetrolberpt. pdf at 5.
9
. See id. (noting that (1) in 2002 even the largest U.S. oil company had less
than 1 percent of world crude oil reserves, (2) all U.S. companies
combined produced less than 10 percent of global production, and (3)
even the merger between Ex xon and Mobil created a firm with only 3.3
percent of worldwide crude oil production).
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