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FTC Confronting Gridlock in Oil Industry Mergers

Regulation: As consolidation plans grow, any deal between Chevron and Texaco would face antitrust hurdles.


As Chevron Corp. and Texaco Inc. continue to negotiate their way toward a possible combination, the urge to merge that has swept the price-shocked oil industry is creating a regulatory version of gridlock at the Federal Trade Commission, the agency that has been reviewing petroleum mergers.

If Chevron and Texaco were to join this sweeping merger wave, they would face significant antitrust hurdles, especially in oil refining and gasoline retailing on the West Coast, analysts say.

But a deal would also face heightened scrutiny because of the rapid consolidation of the petroleum industry that began last summer as oil prices headed for historic lows. Ahead of Chevron and Texaco in line would be Exxon Corp. and Mobil Corp., the archrivals that agreed to combine Dec. 1 in the largest industrial merger ever, and BP Amoco and Atlantic Richfield Co., which unveiled their $27-billion merger plans April 1.

Each proposed merger further concentrates the industry, potentially making regulatory approvals more difficult to obtain for later merger partners, antitrust experts say.

The most profound petroleum consolidation in three decades began in August with the pairing of British Petroleum and Amoco Corp., which managed to slip their merger through the FTC in just 99 working days and with only minor concessions. That led to speculation about all sorts of business combinations, some less than serious: As one popular industry joke goes, if Occidental Petroleum Corp., Mobil and Chevron were to merge, would the resulting company be called OxyMoRon?

This consolidation in the oil patch comes during a record year overall for mergers, which has swamped the FTC with cases to review and few additional bodies to do the work. The FTC and the Justice Department reviewed more than 4,700 merger cases last year, and the FTC alone brought 50 enforcement actions, up 43% from the previous year.

"I know some of the people over there at the FTC and they're overworked, no question about it," said Michael Cooper, an antitrust lawyer with the Washington firm Bryan Cave. "Their staff is really strained."

So far this year the FTC is working at a pace that will surpass 1998 totals by late June or early July, said Phillip L. Broyles, assistant FTC director and chief of the merger division that reviews energy, telecommunications and supermarket combinations. And the agency was budgeted by Congress to employ only 15 more full-time people in fiscal 1999.

"It's a struggle," Broyles said. "You've just got to find a way to do the work. . . . I have a lot of people with leave that haven't been able to use it."

Reviews of large mergers are taking longer, and some cases, especially smaller ones, are getting short shrift, some antitrust lawyers contend.

"They're letting a lot of deals go through that shouldn't, at least in my judgment," said Garret Rasmussen, a former FTC lawyer who now specializes in antitrust law at the firm Patton Boggs in Washington.

Chevron and Texaco, ranked third and fourth among U.S. oil companies by various measures, have never officially acknowledged media reports that they are holding preliminary talks about a merger, potentially valued at about $42 billion. Indeed, Chevron Chairman and Chief Executive Kenneth T. Derr, 62, and Texaco counterpart Peter I. Bijur, 57, both have stressed that their companies do not need a partner to compete successfully with the new trio of "supermajors": Exxon Mobil, BP Amoco and Royal Dutch/Shell.

Investment analysts have speculated that control issues could derail any combination of the two companies. Derr, who underwent prostate cancer surgery a year ago, is nearing retirement and might want to seal his legacy by acquiring Texaco, but the younger, charismatic Bijur might not be content to cede power to Derr's 51-year-old heir apparent, Chevron Vice Chairman David O'Reilly.

The fuel for any potential merger of Chevron and Texaco would be the same as in the matchups that came before: Companies join to save money and to bulk up for a future that promises exploration in tricky and far-flung parts of the world where deep pockets will be a necessity and where the competition is financed by foreign governments.

Chevron, based in San Francisco, and Texaco, based in White Plains, N.Y., share a close relationship already through Caltex, their 63-year-old refining and marketing joint venture that operates in Asia, Africa and the Middle East. Chevron is strong where Texaco is weak in international exploration and production operation, and Texaco's retail operations are considered stronger than Chevron's.

But analysts contend that Chevron and Texaco fit together less well than some of the earlier merger partners--and might be eyeing each other simply because they are the last two large companies not yet spoken for. The two companies have already done extensive cost cutting, which would reduce the potential for savings in a merger.

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