The Commission today voted to finalize a consent order enabling the $45 billion merger of Chevron and Texaco to proceed, subject to a number of divestitures affecting multiple relevant markets in the United States. While we concur in the Commission's decision, we write separately to highlight a concern relating to the divestiture of Texaco's interests in two joint ventures.
First, a bit of history is needed. In 1998, Texaco and Shell Oil Company contributed virtually all of their U.S. petroleum refining, transportation, and marketing operations to Equilon Enterprises, LLC(1) and Motiva Enterprises, LLC(2) (collectively, the "Alliance"). These joint ventures created what was, at the time, the single largest refiner and marketer of petroleum products in the United States. For antitrust purposes, the Commission evaluated the formation of the Alliance as if it were a complete merger of the downstream operations of Texaco and Shell. As a condition of approving the proposed joint ventures, the Commission required Texaco and Shell to divest a broad package of assets sufficient to remedy competitive overlaps in markets for gasoline, jet fuel, asphalt, and transportation of refined light petroleum products.(3) In all subsequent oil merger investigations undertaken by the Commission, we have considered Texaco and Shell to be a single entity when evaluating downstream market concentration.
In late 2000, when Chevron and Texaco proposed to merge, it became apparent that Chevron and the Alliance had a number of unacceptable downstream overlaps, particularly in gasoline refining, transportation, and marketing. To remedy these overlaps, the Commission has required that Texaco divest its entire interest in the Alliance to Shell(4) or another buyer that is approved by the Commission.
After a careful analysis, the Commission has concluded that Shell's acquisition of Texaco's Alliance interest will eliminate the identified anticompetitive overlaps between Chevron and Texaco, and will not create additional competitive problems in any downstream markets. In the Analysis to Aid Public Comment that accompanied the proposed consent agreement, the Commission explained why it would be acceptable to allow Texaco to divest its interest in the Alliance to Shell:
In short, the Commission has concluded that Texaco's transfer of its Alliance interest to Shell, Texaco's current joint venture partner, will remedy the problems posed by this merger and will not significantly change the competitive status quo, even under the rigorous concentration standards the Commission has applied to mergers in the oil industry in recent years.
While we are comfortable with the result in this matter, we remain concerned that the Chevron/Texaco consent order may have created a misimpression: that the Commission gives an automatic antitrust "pass" to transactions stemming from buy-outs of joint venture partners. In our view, this is far from true. It seems to us that when one joint venture partner buys out another partner's interest, that transaction should be subject to antitrust analysis under current market conditions - regardless of the analysis that may have been undertaken when the joint venture initially was formed.(6) Any other approach would risk permanently immunizing joint venturers from antitrust enforcement, regardless of subsequent changes in their relationship and in the marketplace. The resulting double standard would be unfair to merger parties not previously engaged in joint venture arrangements with each other, and such a double standard likely would lead to consumer harm as well.
1. Equilon is currently owned 56% by Shell affiliates and 44% by Texaco affiliates. See Equilon/Motiva web site, available at <http://www.equilon.com/content/equilon_who_we_are_text.asp>.
2. At the time of its formation, Motiva was owned 35% by Shell affiliates and 32.5% each by affiliates of Texaco and Saudi Refining, Inc. ("SRI"). The current provisional ownership percentages are 30% for Shell and 35% each for Texaco and SRI. See Equilon/Motiva web site, available at <http://www.equilon.com/content/motiva_who_we_are_text.asp>.
4. In the case of Motiva, the Texaco interest would be divested to both Shell and SRI, the third joint venture partner.
6. Of course, the Commission would be entitled to review such a transaction even if it were not reportable under the Hart-Scott-Rodino premerger notification regime.