BP Amoco PLC and ARCO have completed a $27 billion merger after meeting the US Federal Trade Commission's demands for substantial divestitures.
The acquisition followed a year of negotiations with FTC regarding how the companies' merger would affect competition in Alaska and on the US West Coast.
In February, both sides took their dispute to court, but the companies later relented on several key points.
FTC had claimed the merger would violate antitrust laws by lessening competition in Alaskan North Slope (ANS) oil exploration and production, the development of ANS gas reserves, ownership of the Trans-Alaska Pipeline System, delivery of oil to West Coast refiners, and pipeline transportation around the Cushing, Okla., pipeline hub. FTC and the companies agreed to a consent order that requires BP Amoco to sell all of ARCO's ANS oil production assets to Phillips Petroleum Co. within 30 days (see story, this page), and ARCO pipeline and storage assets at Cushing to a buyer within 4 months.
The attorneys general of California, Oregon, and Washington had previously opposed the merger but accepted FTC's deal with the firms.
BP Amoco Chief Executive John Browne said, "We are very pleased to have received FTC approval. We intend to move quickly to deliver the significant value of this union to the shareholders of the new group."
BP Amoco is the world's third largest private oil company. ExxonMobil Corp. is the largest, and Royal Dutch/Shell ranks second.
Divestitures
The FTC consent order requires the sale of ARCO's free-standing businesses, which include oil and gas interests, tankers, pipeline interests, real estate, exploration data, and selected long-term supply agreements.
These assets include ARCO Alaska Inc., ARCO Transportation Alaska Inc., ARCO Marine Inc., ARCO Marine Spill Response Co., Union Texas Alaska assets of Union Texas Petroleum Holdings Inc., Union Texas Alaska LLC, Kuparuk Pipeline Co., Oliktok Pipeline Co., Alpine Pipeline Co., Cook Inlet Pipeline Co., all ARCO Alaska oil and gas leases, AMI Leasing Inc., ARCO Beluga Inc., ARCO's office complex in Anchorage, intellectual property, pat- ents, seismic data, ship construction contracts, customer and vendor lists, and long-term supply agreements between BP Amoco and several West Coast refiners.
Most of the ARCO Alaska assets must be divested within 30 days of the FTC signed order, and all assets must be divested within 6 months. If not divested by then, FTC may appoint a trustee to sell them.
The order requires BP Amoco to ensure that ARCO employees remain with the company after the transaction and are available to work for Phillips. BP Amoco must not solicit any ARCO employee for employment unless that employee was terminated by Phillips. It must vest all current and future pension benefits, and it must pay a bonus of at least a 35% of the base salary for certain key ARCO employees.
At Cushing, BP Amoco must sell ARCO's 50% interest in Seaway Pipe- line Co., a partnership with Phillips subsidiaries; ARCO's crude oil terminal facilities in Cushing and Midland, Tex., including the line-transfer and pumpover business at each location; ARCO's interest in the 400-mile, 24-in. Rancho oil pipeline from West Texas to Houston; ARCO's interest in the 416-mile Basin oil pipeline from Jal, NM, to Cushing; and the ARCO West Texas trunk system of receipt and delivery pipelines centered around Midland.
The order bans BP Amoco from reacquiring any interests in the divested assets for 10 years without first giving notice to FTC.
Benefits
At BP Amoco's annual shareholders' meeting just before the merger was completed, Browne touted the expected benefits of the ARCO combination.
"As a result of the [merger], we're gaining a significant presence in the Asian gas market as well as becoming the number one gas producer in North America, in the UK sector of the North Sea, and in the rapidly growing Atlantic and Mediterranean markets.
"Gas was one of the strategic drivers behind the combination. Another was the opportunity in the retail business to build, for the first time, a coast-to-coast presence in the US, where we'll be the largest supplier of gasoline and the operator of the largest number of sites.
"We'll have 28,000 retail sites worldwide, with 18,000 in the US," said Browne, "and an excellent merchandise brand called am/pm, which we believe can be applied well beyond its existing territory."
The acquisition gives BP entry into the US West Coast refining market, where ARCO has two refineries and 1,760 marketing outlets.
"ARCO will also bring us stronger positions in Latin America, Russia, Kazakhstan, and Azerbaijan, in the deep water of the Gulf of Mexico, and in China," said Browne. "The geographic fit with our existing business could not be better. And it will provide a new opportunity to improve productivity and to reduce costs."
Browne said the merged company would trim 2,500 jobs, up from the estimate of 2,000 jobs a year ago.
Even without ARCO's ANS fields, says BP, the merger will allow the combined companies to cut costs by $1 billion/year. Some savings would come from BP's acquisition of all of Vastar Resources Inc., Houston, of which ARCO owns 82%. BP has offered to buy the other 18% for $1.25 billion.
FTC dissent
Although the FTC voted 5-0 to approve the consent order, there was dissent on a major point. Three of the five FTC commissioners refused to require BP Amoco to limit oil exports as a condition of purchasing ARCO. Chairman Robert Pitofsky voted in favor of the provision.
It is believed to be the first time Pitofsky was outvoted on an issue since he became chairman 5 years ago.
In its lawsuit, FTC alleged that BP Amoco had shipped some oil to the Far East in order to limit supply to the West Coast and increase spot prices.
The three commissioners agreed there was some evidence of that, which is legal, but said a permanent export ban is unnecessary because BP Amoco was "highly unlikely to engage in exports following this merger," as it now has refineries to supply on the West Coast.
They said such an "over-regulatory" export restriction would be "unnecessary, unenforceable, and otherwise inappropriate."