State Court to Review Getty-Texaco Merger : Attorney General Argues $10-Billion Deal Is in Violation of California’s Antitrust Law

In a victory for the state attorney general’s effort to block the $10-billion merger of Texaco Inc. and Getty Oil, the state Supreme Court has agreed to decide whether state antitrust law applies to mergers.

The court, in what may become its most significant antitrust case in years, voted Thursday to review a state appellate court ruling that state officials had no authority to get involved in the merger--and that regulation of such mergers was up to the federal government.

The court’s decision to review the case adds to Texaco’s legal problems. Texaco is appealing a $11.1-billion verdict against it in a Texas case stemming from the merger. Pennzoil brought the Texas suit, claiming that Texaco snatched Getty after Pennzoil already had an agreement to buy the Los Angeles-based oil company.

FTC Approved Merger

The Federal Trade Commission approved the merger in July, 1984, over objections by state Atty. Gen. John Van de Kamp. At the time, it was the second largest merger in U.S. corporate history.

After the FTC approval, Van de Kamp’s office sued Texaco, arguing that the merger threatened to force independent oil producers out of business and that the loss of independents might increase costs to California consumers.

“The overriding significance of this case,” Deputy Atty. Gen. Michael Strumwasser said, “is that it is going to establish the limits of (state) antitrust law (regarding) the most critical kind of anti-competitive conduct today--namely mergers that threaten to destroy competition.”

The attorney general said in court papers that Getty had crude oil reserves in California worth $5 billion to $6 billion. With the merger, Texaco became able to produce one of every six barrels of oil pumped from the ground in California.

‘Determining the Law’

A lawyer representing Texaco, David G. Yetter, argued that the state has no authority to regulate transactions with such nationwide implications, noting that the U.S. Constitution prohibits state interference with interstate commerce.

“The only thing we’re really doing (in this case) is determining what the law is,” Yetter said. “It is another step in the process. The remedy that they are ultimately seeking is drastic, but we are far removed from that ever happening.”

Strumwasser said that while the 1984 merger may not be “undoable,” the case could result in court orders forcing Texaco to “spin off assets” in California. Also, a court could issue an order barring Texaco from refusing to do business with independent oil producers.

Strumwasser said the case is particularly important because of recent federal moves cutting back on antitrust enforcement.

“As federal antitrust enforcement becomes less useful, it is important that California law contain its own organic protection for competition,” Strumwasser said.

Justices Stanley Mosk, Cruz Reynoso, Joseph R. Grodin and Allen E. Broussard voted to review the case. Chief Justice Rose Elizabeth Bird did not participate in case. Justices Malcolm M. Lucas and Edward A. Panelli voted against reviewing the appellate court decision.