MERGERS AND ACQUISITIONS OF NATURAL RESOURCES COMPANIES -- ANTITRUST ENFORCEMENT ISSUES

• Jurisdiction: United States

Mergers and Acquisitions of Natural Resources Companies
(Nov 1994)
CHAPTER 10A
MERGERS AND ACQUISITIONS OF NATURAL RESOURCES COMPANIES -- ANTITRUST ENFORCEMENT ISSUES
Roger W. Fones
U.S. Department of Justice
Washington, D.C.

The Antitrust Division's merger enforcement program over the last year has been quite active. In fiscal year 1994 (from October, 1993, to October 1994), the Division announced challenges in 22 merger transactions, causing the parties to restructure the transaction to alleviate competition concerns or to abandon plans to consummate in 14 of those cases. In seven others, our concerns were resolved by consent decree; the last is still in litigation. This record compares with 10 to 12 annual challenges in prior years.

Natural resource industries have been no exception. In recent years, the Division has been active in investigating, and where appropriate, challenging anticompetitive consolidations of natural resource companies. In connection with a 1993 proposed tender offer transaction between Cypress Minerals and Amax, for example, the parties agreed to sell a primary molybdenite mine and a processing facility to a third party to alleviate the Division's competition concerns. Other minerals that have attracted Division challenges

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have included high silica sand in 1991, (used in glassmaking); kaolin clay in 1990 (used by the paper industry); rock salt in 1990, paving gravel aggregate in 1988 and attapulgite clay in 1988.

Ownership of oil and gas reserves is relatively unconcentrated, so mergers and acquisitions among firms owning those reserves seldom raise competitive concerns. We have been very busy in energy related industries, however, particularly where oil field products and services are involved. See U.S. v. Hughes Tool, Co., (D.D.C., filed April 3, 1987) (tricone rock bits and submersible oil well pumps); U.S. v. Baker Hughes, Inc. (D.D.C., filed April 10, 1990) (diamond drill bits); U.S. v. Baker Hughes, Inc., 908 F.2d 981 (D.C. Cir. 1990) (underground drilling equipment; U.S. v. Brown & Root, Inc., (D.D.C., filed December 16, 1991) (marine construction barges for offshore wells); U.S. v. Tidewater, Inc., (D.D.C., filed January 13, 1993) (anchor-handling vessels for offshore wells). In addition, a proposed merger of Jones Act oil tankers in

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1991 and a proposed merger of producers of flexible pipe in 1993 were both abandoned as a result of our objections.

In U.S. v. Dresser Industries, Inc., (D.D.C., filed December 23, 1993) the most recent example, the Division secured divestitures of a drilling fluid business and of a diamond drill bits business. The divestitures were valued at about $300 million, roughly one-third of the value of the parties' $900 million transaction. The diamond bit divestiture in particular is noteworthy because post-acquisition competition was actually enhanced. Although the diamond bit business itself was divested, both the new company and Dresser retained intellectual property rights in the design of the diamond bits, and both Dresser and the new purchaser now compete in world markets to sell these bits.

Natural resource mergers, including mergers and acquisitions in the regulated natural gas industry, are subject to Section 7. When those...