Tuesday, February 6, 2001
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Posted on: Tuesday, February 6, 2001

Phillips-Tosco merger under scrutiny

USA Today

WASHINGTON — Phillips Petroleum’s $7 billion purchase of oil refiner and marketer Tosco could raise competitive concerns because of the two firms’ business relationship in the Pacific Northwest. It certainly will get close scrutiny, antitrust experts say.

Phillips and Tosco would be the second-largest refiner in the nation after ExxonMobil. With about 12,000 gasoline stations combined, the companies would also be the nation’s third-largest gas retailer.

The deal was approved by the boards of both companies Sunday and is expected to be completed by the third quarter of 2001.

Tosco, which sells gas under the "76" brand, bought the Exxon and Mobil gas stations on the East Coast that the companies sold to gain approval of their merger.

In Hawaii, Tosco is one of seven major oil companies, owning or franchising more than 60 of its trademark Union 76 gas stations, plus several attached Circle K convenience stores. It also operates port facilities in Honolulu and the Big Island’s Kawaihae and Hilo harbors.

The Phillips-Tosco deal, which likely will be reviewed by the Federal Trade Commission, comes as steep oil prices make politicians more leery of oil mergers. But antitrust experts say today’s high prices wouldn’t influence the government’s probe.

Antitrust enforcers "still have to find a likelihood of anti-competitive conduct," said former FTC antitrust chief William Baer. "The statute speaks of substantially lessening competition, but when you take a market that already has a limited number of players and reduce it by one, it’s going to get very close scrutiny."

Key issues, according to Steve Newborn, FTC’s former head of merger enforcement:

Phillips has a large share of Alaskan North Slope crude oil, and Tosco has a refinery in the Pacific Northwest. That could raise concerns that independent refiners might be deprived of that Alaskan crude.

The deal may have the potential to lessen Tosco’s incentive to continue discounting.

There are likely other overlaps in specialty products made at refineries that some customers need.

"Given the importance of oil to the U.S. economy, I think the agency will take a close look at the merger," said former FTC antitrust chief Richard Parker.

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