Trade Commission vetoes merger of oil giants BP Amoco, Arco

T.A. Badger

Thursday, Feb. 3, 2000 | 11:12 a.m.

In Las Vegas

Arco has 53 gas stations in metro Las Vegas -- 15 company-owned stores and 38 franchises. BP Amoco has no stations in the Las Vegas market.

Less than a week before BP Amoco was to finalize its proposed takeover of Atlantic Richfield Co., the Federal Trade Commission has stepped in front of the deal, branding it anticompetitive.

The FTC on Wednesday voted 3-2 to direct its staff to seek an injunction that would torpedo the $29 billion merger, concluding the new company would dominate Alaska oil production and West Coast markets and have the power to control prices.

"This particular merger is anticompetitive," said Richard Parker, director of the FTC's Bureau of Competition. "We're going after this merger, and we're going to try to stop it."

London-based BP Amoco launched its bid for Los Angeles-based Arco in March. The deal was scheduled to go through on Monday, but Parker said the government would go to court in San Francisco as early as Friday to block it.

The deal proposes to create the second largest nongovernment oil company behind Exxon Mobil, whose merger was approved by the FTC in November.

BP Amoco and Arco said they would fight the FTC in court.

"We believe we have a compelling case," BP Amoco said in a statement.

Shares of BP Amoco sagged today on the news, falling 7.3 percent by midday on the London Stock Exchange.

Parker said the BP Amoco-Arco combination would create "a colossus" that could dictate prices to West Coast refiners reliant on Alaska crude oil. Merger critics say such supply dominance could force up gasoline prices in California and other West Coast states.

Alaska is where BP Amoco and Arco have the most overlap in their global operations. They are the state's two largest oil producers, accounting for more than 70 percent of daily output.

Alaskans have been split over the buyout.

The Alaska Public Interest Research Group was elated.

"It's a great day for Alaska and Alaska's future," said Jim Sykes, executive director of the group, which was part of the makeshift coalition of deal opponents that span the political spectrum. "It's not the final step, but it's a major, major victory."

But others believe the BP-Arco combination would be in the state's best interests, and that the FTC has extended what has been an unsettled 10 months since the deal was announced.

"If there's uncertainty in the oilpatch, long-term decisions won't be made," said Karen Cowart, executive director of the Alaska Support Industry Alliance.

But the FTC's Parker said BP already takes advantage of refiners by charging higher prices to those most dependent on Alaska crude.

Parker also charged BP with using Alaska oil exports to restrict supply to the West Coast and thereby keep crude prices artifically high.

"This deal will cement that market power and harm competition by creating a significant risk that crude oil prices would be higher on the West Coast than they would be without the deal," Parker said.

In a joint statement, BP Amoco and Arco disputed the FTC view, saying oil was a global commodity.

"Any suggestion that there is a special West Coast market for Alaskan crude oil that functions independently of world crude prices is without foundation," the companies said.

BP Amoco had said it would sell off 13 percent of the production as well as part ownership in two Alaska oil fields. But Parker said the new company still "would control overwhelming proportions of the (Alaska) production."

Even with the proposed divestitures, the combined company would account for 55 percent of the oil flowing from Alaska's North Slope, the FTC estimated.

Litigation could take months and eventually may end up before the Supreme Court if BP Amoco persists in fighting the biggest antitrust challenge to the oil industry since the Standard Oil breakup nearly a century ago.

Antitrust experts said the government may have a tough time proving its case.

"Oil flows. They're going to have to find some sort of argument to show why the international (market) is not going to solve the problem," said Victor Goldberg, a law professor at Columbia University.