ANALYSIS OF PROPOSED CONSENT ORDER
The Federal Trade Commission ("Commission") has accepted, subject to final approval, an Agreement Containing Consent Order ("Agreement") from Exxon Corporation (Exxon), and from The Shell Petroleum Company Limited and Shell Oil Company (collectively Shell).
The proposed Consent Order has been placed on the public record for sixty (60) days for reception of comments by interested persons. Comments received during this period will become part of the public record. After sixty (60) days, the Commission will again review the Agreement and the comments received and will decide whether it should withdraw from the Agreement or make final the Agreement's proposed Order.
Both Exxon and Shell develop, manufacture, market and sell additives used in the production of fuels and lubricants, including viscosity index improvers used in lubricants for crankcase applications (motor oil or engine oil.) Viscosity index improvers (VII) (also known as viscosity modifiers) are added to motor oil to improve the ability of the motor oil to flow properly. The viscosity of a fluid is its internal resistance to flow; the higher the viscosity, the more resistance to flow. The viscosity of lubricating oil is affected by temperature, higher temperatures lowering the viscosity. Motor oil must have sufficient viscosity to adhere to the internal surfaces of the engine even after the engine temperature rises and reduces the oils viscosity. Motor oil must also have low enough viscosity to flow through the engine when the engine is cold, particularly in winter weather. Viscosity index improvers give motor oil the ability to have the appropriate high viscosity at high temperatures and the appropriate low viscosity at low temperatures.
The market for the viscosity index improvers in North America is highly concentrated. Exxon and Shell collectively account for over one-half of the sales of VII for use in motor oil in North America.
On July 10, 1996, Exxon and Shell announced an intention to form a joint venture to own and operate their businesses engaged in the development, manufacture, marketing and sale of additives used in the production of fuels and lubricants (the Joint Venture). Among other products, the Joint Venture proposed to include the portions of the businesses of Exxon and Shell that are in the viscosity index improver business.
The Proposed Complaint
The proposed complaint alleges that the proposed acquisition may substantially lessen competition in the development, manufacture, marketing and sale of viscosity index improvers. The proposed complaint also alleges that North America is the relevant geographic market for evaluating the Joint Ventures effect on the viscosity index improver market.
The proposed complaint alleges that Exxon and Shell account for over one-half of the sales of VII in the relevant market. The complaint further alleges that the proposed transaction would increase the likelihood of or facilitate collusion or coordinated interaction between the Joint Venture and the remaining competitors in viscosity index improvers.
The proposed complaint alleges that entry into the alleged market would not be timely, likely, and sufficient to deter or offset the adverse effects of the Joint Venture on competition in these markets. Entry into the market for viscosity index improvers requires developing a viscosity index improver that meets industry standards. This is difficult and time consuming and takes over two years. Entry into the market for viscosity index improvers also requires that the entrant either build a plant to manufacture synthetic rubber or find an operating plant that will supply the new entrant synthetic rubber that can be used for viscosity index improver for motor oil. The proposed complaint alleges that building a new manufacturing facility for the production of synthetic rubber of the type that can be used in the production of VII would take over two years and that there are few, if any, producers of synthetic rubber of the types that can be used for VII that could supply a new entrant.
The Proposed Order
The proposed Order would remedy the alleged violation by preserving the competition that would otherwise be lost as a result of the formation of the Joint Venture, by requiring the sale of Exxons viscosity index improver business to a Commission-approved buyer prior to consummation of the Joint Venture or within 6 months of signing the Agreement. Exxon has come forward with a prospective purchaser, Chevron Chemical Company LLC (Chevron), a subsidiary of Chevron Oil Company. The Oronite division of Chevron already develops, manufactures, markets and sells lubricant additives. Exxon and Chevron have negotiated an agreement of sale. Under the proposed order, Exxon may either proceed to sell its viscosity index improver business to Oronite, including in the sale those assets that Oronite and Exxon have negotiated, or sell to another buyer that the Commission approves. If Exxon sells to another buyer, it must include in the sale the assets enumerated in the proposed Order. Another buyer that, unlike Chevron, does not have a division already producing additives for lubricants may need assets that are part of Exxons viscosity index improver business that Chevron did not need.
Under the proposed Order, Exxon may complete the proposed divestiture to Chevron and then consummate the Joint Venture with Shell once the Commission has accepted the Agreement. If Exxon completes the sale to Chevron before the proposed Order is made final, the proposed Order requires that Exxon rescind the sale to Oronite if the Commission determines after the public comment period that the proposed sale to Oronite is not appropriate relief. In such a situation, if Exxon and Shell have consummated the Joint Venture, the proposed Order requires that the assets then be held under a hold separate agreement until they can be divested. If the divestiture is not completed within six months of the date the parties signed the Agreement, then the Commission may appoint a trustee to effect the sale of the assets.
The proposed Order does not require the sale of a plant to manufacture synthetic rubber to make viscosity index improvers. It does require that if Exxon sells to a party other than Oronite, it provide the purchaser a supply of synthetic rubber. Moreover, if Exxon completes the proposed sale to Chevron, Exxon may not sell its synthetic rubber for viscosity index improver applications to parties other than Chevron, except to the extent that Exxons proposed sales agreement with Chevron would permit such sales. Finally, the proposed Order contains a firewall provision prohibiting the transfer of competitively sensitive information from Chevron, through Exxon, to the Joint Venture or to Shell.
The purpose of this analysis is to facilitate public comment on the proposed Order. This analysis is not intended to constitute an official interpretation of the Agreement or the proposed Order or in any way to modify the terms of the Agreement or the proposed Order.