FTC rejects Amoco-Arco deal
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February 2, 2000: 6:26 p.m. ET
Regulatory commission votes 3-2 to challenge $27B acquisition in court
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NEW YORK (CNNfn) - The Federal Trade Commission blocked BP Amoco Plc's planned $27 billion acquisition of Atlantic Richfield Corp. Wednesday, contending the combined company would wield too much control over Alaskan oil production.
The agency's commissioners voted 3-2 to reject the merger, which would create the world's second-biggest private oil company after ExxonMobil. The FTC will seek a preliminary injunction in U.S. District Court in San Francisco to halt the deal, which could effectively decide whether the companies may merge.
The FTC said the merger would reduce competition in the sale of crude oil to refiners and could lead to higher gasoline prices in the states of Washington, Oregon and California, which already have some of the highest gasoline prices in the country.
"We have the No. 1 and the No. 2 firms (in Alaskan oil production) combining, and it's that combination that we're going after by way of this injunction," Richard Parker, the FTC's director of the bureau of competition, told reporters. "What this case is about at a fundamental level is about a dominant firm ... buying the one firm, Arco, which is the threat -- the biggest threat -- to that market power."
In a statement, the companies said they were disappointed by the decision.
"We regret that the only course now open to us is to resolve the issue through litigation but we believe we have a compelling case in support of our combination which we will argue vigorously in court," the companies said.
"Any suggestion that there is a special West Coast market for Alaskan crude oil that functions independently of world crude prices is without foundation. In fact, the proposed combination of our companies will drive down Alaskan production costs, making Alaskan crude oil more competitive in the world market."
British-based BP Amoco announced in April 1999 that it would purchase Atlantic Richfield, known as Arco, of Los Angeles. European regulators already have approved the merger.
"We regret that the only course now open to us is to resolve the issue through litigation but we believe we have a compelling case in support of our combination which we will argue vigorously in court."
-- Joint statement from BP Amoco and Arco
The FTC ruling comes after federal antitrust regulators last year approved several other big oil deals, including Exxon Corp's acquisition of Mobil Corp. But world oil prices have skyrocketed in recent months on worries about dwindling inventories, OPEC's sustained cutback in production, and unusually cold temperatures.
BP Amoco and Arco currently produce 70 percent of the oil on Alaska's North Slope. That oil accounts for 45 percent of the oil refined in California, Oregon and Washington.
During weeks of negotiations, BP Amoco sought to ease antitrust concerns by pledging to reduce its North Slope production by about 13 percent, sell off interests in two oil fields and reduce its control of the trans-Alaska pipeline. But the concessions, which still would give the new company 55 percent of Alaska's oil production, were not enough to sway the FTC.
One industry analyst said that he thinks the FTC will have a tough time convincing a judge of its case, saying that BP Amoco already has made sufficient concessions.
"I think there's a lot of politics involved here and I think BP Amoco has a actually very solid case to bring before a judge to try to prevent the preliminary injunction from going through," said Jordan Horoschak of the S&P Equity Group.
He said the merger is unlikely to cause higher crude oil prices or higher California gasoline prices.
"I think a lot of what the FTC has done has been the result of a lot of political talk," he said. "High gasoline prices right now are a hot political issue and a lot of politicians are pushing to block a merger like this," he said.
Parker said he was not concerned that the commission vote was narrowly split, saying there was ample precedent in Supreme Court rulings that the merger violates antirust law. He said the FTC will file its injunction request by early next week.
The news was announced minutes before Wall Street's closing bell. BP Amoco (BPA: Research, Estimates) shares lost 9/16 at 53-15/16 on the New York Stock Exchange, while Arco (ARC: Research, Estimates) lost 2-3/16 to 72-1/16.
-- from staff and wire reports
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