FTC opposes Western Refining's merger with Giant

The US Federal Trade Commission said it will oppose Western Refining Inc.'s planned $1.4 billion acquisition of Giant Industries Inc. because it would significantly reduce competition in northern New Mexico's light products market.

Nick Snow
Washington Correspondent

WASHINGTON, DC, Apr. 11 -- The US Federal Trade Commission said it will oppose Western Refining Inc.'s planned $1.4 billion acquisition of Giant Industries Inc. because it would significantly reduce competition in northern New Mexico's light products market.

The commission unanimously approved a complaint challenging the transaction on Apr. 10 and cleared the way for its staff to seek a temporary restraining order and preliminary injunction in federal district court to halt the deal while an administrative trial is held.

Western Refining and Giant Industries immediately issued a statement saying that the federal agency's decision is without basis in law and would be vigorously challenged in court. A hearing schedule on the matter will be determined in the next few days, they said.

The two independent refiner-marketers compete as bulk suppliers of gasoline, diesel fuel, and other light petroleum products in Albuquerque, Santa Fe, and elsewhere in northern New Mexico, according to Jeffrey Schmidt, director of FTC's Bureau of Competition. "Western's acquisition of Giant would eliminate this competition, leading to higher prices of these important energy products," he said.

The federal agency noted that Giant owns and operates two refineries and adjacent terminals in northern New Mexico at Bloomfield and Ciniza from which it supplies bulk gasoline and diesel to New Mexico, Arizona, Utah, and Colorado. The Scottsdale, Ariz., company also supplies light products to northern New Mexico from its Albuquerque terminal, FTC said.

FTC said Western operates a single refinery in El Paso that supplies gasoline, diesel, jet fuel, and other light products to Albuquerque, El Paso, Phoenix, Tucson, and Juarez, Mexico. The company also is one of two refiners using the Plains Pipeline to ship light products from El Paso to northern New Mexico, it added.

Already concentrated
FTC contends that if Giant is not acquired by Western, it would soon increase the supply of gasoline to northern New Mexico by bringing up to capacity production at its two area refineries and that the merger would prevent this. The combination would substantially increase concentration in an already concentrated market and substantially reduce competition in the bulk supply of gasoline to northern New Mexico, it added.

It also contends that Western "has both the incentive and the means" to limit gasoline supplies to northern New Mexico once the acquisition is complete by diverting some of Giant's planned additional supplies for Albuquerque and Santa Fe to other markets. Western also could reduce supplies into the area by shifting some of its current bulk supply on the Plains Pipeline, FTC said.

Officials of the two companies expressed surprise at the agency's action. "This merger will result in more product being provided to the combined companies' customers and is, therefore, procompetitive. The FTC's decision demonstrates a fundamental and troubling lack of understanding about the areas in which Western Refining and Giant operate, the competitors in those areas and the competitive nature of those areas," said Paul L. Foster, Western's president and chief executive officer.

Fred L. Hollinger, Giant's chairman and chief executive officer, noted that the two companies represent less than 1.5% of the nation's total refining capacity, and that FTC has approved mergers and acquisitions in the past several years that have created much larger refining companies. "The employees of both companies have spent countless hours preparing documents in response to the FTC's information requests, and we and our advisors haven't seen anything that we believe would serve as a basis for the FTC to oppose this merger," he said.

The companies said FTC has never suggested the need for divestitures or other potential remedies, and that numerous state and trade association officials submitted letters supporting the merger and noting that the companies are small, independent refiners; that the areas in which they operate are highly competitive and have numerous fuel supply options; that Western has one of the industry's best operates and its expertise would help ensure more reliable gasoline and diesel supplies by improving utilization rates and reducing the risk of unplanned refinery shutdowns; and that the combination would create a more stable organization.

FTC said the proposed merger, which was announced on Nov. 13, 2006, violates Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended. It said it plans to appoint a New Mexico assistant attorney general as a special deputy to the commission to participate in the court action.

Contact Nick Snow at nsnow@cox.net.

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