Antitrust Lawyer Blog Commentary on Current Developments

New Mexico Court Temporarily Blocks Western Refining’s Acquisition of Rival Energy Company Giant Industries, Inc.

On April 13, the U.S. District Court for the District of New Mexico issued a temporary restraining order (“TRO”) to prevent Western Refining, Inc. from closing on its proposed $1.4 billion acquisition of Giant Industries, Inc., pending the completion of a preliminary injunction hearing.
On April 10, 2007, the FTC approved a complaint challenging the acquisition and authorized FTC staff to seek a preliminary injunction in federal district court to block the proposed transaction.
The federal district court complaint alleged that the acquisition would lead to reduced competition and higher prices for the bulk supply of light petroleum products, including gasoline, to northern New Mexico, an area of the country where the companies are direct and significant competitors.

According to the FTC’s complaint, 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 FTC contended that if Giant was not acquired by Western, Giant would 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 alleged 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.
The FTC voted 5-0 to authorize the staff to seek a temporary restraining order and preliminary injunction blocking the transaction pending an administrative trial. The FTC appointed a New Mexico assistant attorney general as a special deputy to the FTC to participate in the court action.
In granting the Commission’s request for a TRO, the judge enjoined the transaction pending the resolution of the hearing on the preliminary injunction.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com