FTC Sues to Block Amoco’s Arco Merger

Contending that BP Amoco is already manipulating the price of the Alaskan crude oil on which many West Coast refineries depend, the Federal Trade Commission filed suit Friday to block the company’s proposed merger with Atlantic Richfield Co.

Los Angeles-based Arco, No. 2 to BP Amoco in Alaska, is the company most likely to control the British firm’s alleged monopoly power and therefore should not be allowed to merge with it, the FTC argued in a complaint filed in U.S. District Court in San Francisco.

The lawsuit, which seeks a temporary restraining order and permanent injunction, was authorized by the commission in a 3-2 vote Wednesday.

Representatives of BP Amoco and Arco declined to comment on the contents of the complaint. The companies have vowed to fight the FTC in court so that they can complete the $27-billion merger.

But according to the terms of the deal, BP Amoco or Arco can walk away from the merger without incurring the agreed-upon $500-million termination penalty after March 31, the one-year anniversary of the agreement for BP Amoco to purchase Arco through an exchange of stock. That date can be extended to June 30 by either company’s board if regulatory approval has not been received.

U.S. District Judge Susan Illston set a hearing for March 10. Friday’s filing begins what could be a lengthy legal battle, with a second trial expected before an administrative law judge after the injunction ruling.

BP Amoco has said it will argue that prices for Alaskan oil are determined by world markets, not one company. But the FTC maintained in its lawsuit that the West Coast is “a relevant geographic market” where BP Amoco is trying to increase its alleged ability to influence oil prices.

BP Amoco and Arco together dominate nearly all facets of the Alaskan oil industry--whether bidding on oil and gas leases, exploration and production, transporting the crude via the trans-Alaska pipeline to the port of Valdez, and shipping the oil by tanker to refineries on the West Coast and elsewhere--the FTC said in its suit.

BP Amoco already exercises monopoly power by charging more to West Coast refineries that are least able to substitute oil from other sources, the suit stated. The company also sells its Alaskan oil to Asia for less than it could sell it on the West Coast “to restrict the supply of crude oil on the West Coast and elevate its price to West Coast customers,” the FTC charged.

The FTC said the merger would give BP Amoco control of 40% of the pipeline and storage capacity at Cushing, Okla., where the benchmark West Texas intermediate crude oil is delivered. That would allow the resulting company to manipulate the price of crude oil futures contracts on the New York Mercantile Exchange, the suit said.

Arco shares fell $1.38 to close at $68.38 and BP Amoco’s American depositary receipts dropped $2.94 to close at $49.25, both on the New York Stock Exchange.