FTC Seeks to Block Western Refinings Proposed Acquisition of Giant Industries

The Federal Trade Commission today approved a complaint challenging Western Refining, Inc.’s (Western) approximately $1.4 billion acquisition of rival energy company Giant Industries, Inc. (Giant) and authorized the staff to seek a temporary restraining order and preliminary injunction in federal district court to halt the deal pending an administrative trial on the merits. According to the Commission, Western’s proposed acquisition of Giant would lead to reduced competition for the bulk supply of light petroleum products to northern New Mexico, an area of the country where the two companies are direct and significant competitors.

Through the proposed acquisition, Paul L. Foster, the ultimate parent entity of Western, would acquire all of the voting securities of Giant in exchange for approximately $77 per share in cash, plus $280 million in assumed debt.

“Western and Giant compete in the bulk supply of light petroleum products to northern New Mexico, including gasoline and diesel,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “Western’s acquisition of Giant would eliminate this competition, leading to higher prices for consumers of these important energy products.”

The Bulk Light Petroleum Products Market: Bulk light petroleum products include motor gasoline, diesel fuels, and jet fuels that are used in cars, airplanes, and other vehicles. They are produced from crude oil at refineries throughout the United States and worldwide, and there are no suitable substitutes for such products to fuel cars and other vehicles that run on gasoline. There also are no suitable substitutes for diesel fuel or for jet fuel used to power airplanes. Light petroleum products are transported in bulk from the refineries where they are produced to the markets where they are sold via ocean-going tankers and pipelines, as the road transport of such fuel is not cost-efficient. Tank trucks are used to transport the product from terminals to retail distribution points such as gas stations.

In northern New Mexico, Giant owns and operates two refineries and their adjacent terminals, one in Bloomfield and the other in Ciniza, from which it supplies bulk gasoline and diesel fuel to New Mexico, Arizona, Utah, and Colorado. Giant also owns a petroleum products terminal in Albuquerque, from which it supplies bulk gasoline and diesel fuel to northern New Mexico.

Western owns and operates a single refinery complex in El Paso, which produces primarily high-value transportation fuels, including gasoline, diesel fuel, and jet fuel. From the refinery, Western supplies these products to Albuquerque, El Paso, Tucson, Phoenix, and Juarez, Mexico. Western Refining is one of two refiners supplying gasoline and diesel fuel in bulk from El Paso to Albuquerque via the Plains Pipeline, on which it has historical shipping rights.

The Commission’s Complaint: The FTC’s complaint charges that Western’s acquisition of Giant, as proposed, would violate Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended. It contends that if Giant is not acquired by Western, Giant will soon increase the supply of gasoline to northern New Mexico, and that the transaction as proposed would prevent this. Giant plans to bring production at its two New Mexico refineries up to full utilization, increasing the production levels of light petroleum products that it is distributing to its current marketing areas. This means more gasoline would be distributed to the Albuquerque/Santa Fe area of northern New Mexico than ever before, spurring competition within the market and leading to prices for bulk light petroleum products to decrease.

The FTC contends that the proposed acquisition would combine two of the five significant bulk suppliers–those able to increase supply in response to an output decrease–of light petroleum products to northern New Mexico; would eliminate the existing substantial competition between Western and Giant in this market; would substantially reduce competition in the market for bulk supply of light petroleum products to northern New Mexico; would combine two of the six significant bulk suppliers of gasoline to northern New Mexico, substantially increasing the concentration in an already highly concentrated market; and would eliminate existing substantial competition between Western and Giant, and would substantially reduce competition in the bulk supply of gasoline to northern New Mexico.

The Commission also contends that Western has both the incentive and the means to limit any increase in the supply of gasoline to northern New Mexico after its acquisition of Giant by, among other means, diverting some of Giant’s planned additional gasoline supply for Albuquerque and Santa Fe to other markets. Western also could reduce the supply to northern New Mexico by shifting some of its current bulk supply between gasoline and diesel on the pipeline. This would allow Western to reduce the amount of gasoline or diesel fuel reaching Albuquerque.

Finally, the complaint states that the reestablishment of Western and Giant as independent and viable competitors after the consummation of the deal would be difficult, that competitive harm would occur during the time it took to unravel the transaction, and that entry by other firms is not likely to offset the competitive harm caused by the acquisition.

The Commission voted 5-0 to authorize the staff to seek a temporary restraining order and preliminary injunction blocking the transaction pending an administrative trial. The complaint will be filed by April 13, 2007, in the U.S. District Court for the District of New Mexico against defendants Paul L. Foster; Western Refining, Inc., and Giant Industries, Inc. It will be available on the FTC’s Web site as a link to this press release upon filing. The FTC will appoint a New Mexico assistant attorney general as a special deputy to the Commission to participate in the court action.

NOTE: The Commission issues or files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the named parties have violated the law.

Copies of the complaint will be available upon filing from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

MEDIA CONTACT:

Mitchell J. Katz,
Office of Public Affairs
202-326-2161

STAFF CONTACT:

Phillip L. Broyles,
Bureau of Competition
202-326-2805

(FTC File No.: 061-0259)