Mergers, Acquisitions, Divestitures, and Related Issues

• Pages: 159-191

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).