• On July 28, the FTC voted to authorize the staff to seek a temporary restraining order and preliminary injunction to block Aloha Petroleum LTD’s (“Aloha”) proposed $18 million acquisition of the half interest in an import-capable terminal and retail gasoline assets of Trustreet Properties, Inc. (“Trustreet”) on the island of Oahu, Hawaii. According to the Commission’s complaint, the transaction, which was not reportable under the Hart-Scott-Rodino (HSR) premerger filing guidelines, would reduce the number of gasoline marketers and could lead to higher gasoline prices for Hawaii consumers. Aloha seeks to acquire from Trustreet a 50 percent interest in the Barbers Point petroleum importing terminal on Oahu. Aloha already owns the other half. Aloha also would acquire, through long-term leases, 18 retail stations that Trustreet now operates under the “Mahalo” brand name.

  Built in the 1990s, the Barbers Point terminal is the newest on the island. It can take full cargoes of gasoline, which is the most economical way to bring in low-cost bulk supply. The complaint alleges that the ability to import cargoes of gasoline is necessary to obtain a competitive bulk supply price from one of the two refiners on Oahu. These refineries are owned by Chevron Corporation (“Chevron”) and Tesoro Corporation (“Tesoro”). Both Aloha and Trustreet have the right and ability to use the Barbers Point terminal to import cargoes of gasoline or to store gasoline obtained from the refiners on Oahu. The only other terminal that will be available for gasoline imports is the Shell terminal. Consequently, the complaint alleges, this acquisition, if allowed to proceed, would reduce the number of gasoline marketers with ownership of, or guaranteed access to, a refinery or an import-capable terminal from five to four, and would reduce from three to two the number of bulk suppliers who have been willing to sell to unintegrated retailers, thereby leading to higher prices for bulk supply of gasoline.

  All refined petroleum products supplied to Hawaii’s outer islands come from Oahu, which is the only island with refineries and with terminals large enough to supply the rest of the State. Accordingly, any combination of bulk suppliers on Oahu is likely to impact the other Hawaiian islands as well.

  Regarding the retail market, there are seven major gasoline retailers on Oahu: Chevron, Tesoro, Shell, Aloha, Mid Pac, Costco, and Trustreet. The complaint alleges that the Mahalo and Aloha stations are each other’s closest competitors as low-priced retailers of gasoline on Oahu. This acquisition will end that competition and give Aloha the ability to raise prices. Accordingly, the complaint alleges, this proposed acquisition likely will lead to higher gasoline prices for consumers on Oahu.

  According to the Commission’s complaint, the transaction as proposed would be anticompetitive and in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended. The FTC vote to challenge the proposed acquisition was 2-1-1, with Commissioners Pamela Jones Harbour and Jonathan D. Leibowitz voting yes, Thomas B. Leary voting no and Chairman Deborah Platt Majoras recused. The motion was filed on July 27, 2005 in the U.S. District Court for the District of Hawaii.

• On July 28, the White House transmitted to the Senate the nomination of William E. Kovacic to succees Orson Swindle as the Federal Trade Commissioner. President Bush nominated Kovacic for a term to exprire on September 25, 2011. Kovacic currently is the E.K. Gubin Professor of Government at the George Washington University Law School. From June 2001 to December 2004, Kovacic served as General Counsel of the FTC. On his watch, the commission prevailed in over 20 appellate matters–including the validity of the Do-Not-Call Registry. Before joining the faculty of the George Washington University Law School, he served as the George Mason University Foundation Professor at the Goerge Mason University School of Law.

• In order to ensure continued competition in the market for casino services in Baton Rouge, Louisiana, on July 27, the FTC announced a consent order that will permit Penn National Gaming, Inc.’s (“PNG”) $2.2 billion acquisition of Argosy Gaming Company (“Argosy”), provided PNG sells Argosy’s Baton Rouge casino to Columbia Sussex Corporation within four months of the order’s becoming final. Because PNG and Argosy now operate the only two casinos in Baton Rouge, the divestiture is necessary to preserve a competitive alternative.

• On July 26, following a public comment period, the Commission approved the issuance of a final consent order in the matter concerning Valero L.P.’s recent acquisition of Kaneb Services and Pipe Line Partners. The Commission vote approving the final consent order was 3-0-1, with Chairman Deborah Platt Majoras recused.

• In an effort to preserve competition in U.S. markets for three generic pharmaceuticals, on July 19, the FTC approved Novartis AG’s (“Novartis”) $1.72 billion acquisition of Eon Labs, Inc. (“Eon”), provided Novartis divests three overlapping drugs to Amide Pharmaceutical, Inc. (“Amide”).

  Under the terms of a proposed consent order with the Commission, Novartis is required to divest all the assets necessary to manufacture and market generic desipramine hydrochloride tablets, orphenadrine citrate extended release (“ER”) tablets, and rifampin oral capsules in the United States to Amide within 10 days of Novartis’s acquisition of Eon. Further, Novartis, through its Sandoz generic pharmaceuticals division, will supply Amide with orphenadrine citrate ER and desipramide hydrochloride tablets until Amide obtains Food and Drug Administration (“FDA”) approval to manufacture the products itself, and will assist Amide in obtaining all necessary FDA approvals.

  Desipramine hydrochloride is a tricyclic antidepressant, with annual U.S. generic sales of approximately $6 million. Orphenadrine citrate ER, a muscle relaxant, has annual U.S. generic sales of approximately $10 million, while rifampin, a drug used in the treatment of tuberculosis, has annual U.S. generic sales of approximately $14 million. The average price of each of these three branded drugs is more than twice the average price of their generic equivalents.

  Thus, it is competition among producers of each of the generics that has a direct and substantial effect on the pricing of that generic. As a result, the Commission concluded that the generic forms of these drugs constitute appropriate antitrust markets in which to analyze the effects of the transaction.

  The transaction threatened competition in each of the three generic markets. In all three markets, Novartis and Eon are significant competitors. Further, in all of the markets of concern there is only one other competitor. In the generic desipramine hydrochloride market, the only other competitor is Watson Pharmaceuticals, which manufactures only three of the six strengths of the drug, and accounts for a minuscule share of the market. Likewise, in the orphenadrine citrate ER and rifampin markets, Impax Laboratories and VersaPharm, respectively, are the only other generic competitors, and in both markets, the combined Novartis/Eon would account for about 70 percent of generic sales. The Commission therefore has concluded that, unremedied, the Novartis-Eon deal would be likely to result in higher prices and other anticompetitive effects in each of these generic markets.

• Following a public comment period on July 19, the Commission approved the issuance of a final consent order in the matter concerning Occidental Petroleum Corporation’s recent acquisition of three chemical plants and related assets from Vulcan Chloralkali, LLC and Vulcan Materials Company. The Commission vote approving the final consent order was 4-0.

• On July 15, The Commission has received a petition seeking the approval of three proposed divestitures required under the FTC’s order regarding Valero L.P.’s (“Valero”) recent acquisition of Kaneb Services LLC (“Kaneb”). Under the terms of the consent order, Valero and Kaneb are required to divest: 1) the West Pipeline System; 2) the Philadelphia Area Terminals; and 3) the San Francisco Bay Terminals, as those terms are defined in the order, to Commission-approved purchasers. Through this petition, Valero and Kaneb have requested FTC approval to divest all three assets to Pacific Energy Group LLC, or one of its wholly owned subsidiaries, per a July 1, 2005, purchase agreement between the relevant companies.

• On July 15, The Commission approved a petition to reopen and modify the final decision and order in the 2003 matter concerning Nestlé Holdings Inc., Docket No. C-4082, which arose from Nestlé’s acquisition of Dreyer’s Grand Ice Cream Holdings, Inc. The respondents petitioned the FTC on behalf of CoolBrands International, Inc., and its subsidiary Integrated Brands, Inc., the Commission-approved divestiture buyer in this proceeding, to extend portions of the Transitions Services Agreement between respondents and CoolBrands for an additional 12 months. The Commission has approved the petition by a vote of 4-0. The companies also requested expedited consideration of the petition and a waiver of the public comment period. The FTC denied that request.

• Following a public comment period on July 8, the Commission has approved a petition by Entergy-Koch, LLC (“EKLP”) to reopen and set aside an existing order in Docket No. C-3998. The order, dated January 31, 2001, establishes procedures for Entergy and EKLP to follow regarding Entergy’s procurement of natural gas transportation services to carry natural gas to any electric power generating facility or local natural gas distribution facility that uses, distributes, stores, or transports natural gas, and is owned, operated, or controlled by an Entergy subsidiary that is subject to a state regulator’s rules governing the recovery cost of buying the relevant product.

  In its petition, EKLP stated that Paragraph II of the Commission order was intended “to create a competitive, transparent process to make it easier for regulators to detect whether Entergy purchased gas supplies . . . at inflated prices or a level of service that is above what necessary for effective operation, in the wake of the joint venture that gave Entergy a 50 percent interest in Gulf South,” a major natural gas transportation supplier in Louisiana and Mississippi. The respondents accordingly petitioned the FTC to reopen and modify the order because: 1) Entergy and EKLP have fully complied with its terms; 2) EKLP sold Gulf South to TGT Pipeline, LLC on December 29, 2004, eliminating Entergy’s indirect 50 percent ownership in Gulf South; and 3) Entergy no longer has any ownership interest in or control over Gulf South, so it no longer has any arguable incentive to pay inflated natural gas transportation prices to Gulf South. Moreover, with the sale of Gulf South, EKLP no longer can ensure that Gulf South posts on its Electronic Bulletin Board, as required by Paragraphs II.C.1.d and II.C.2.d. Consequently, it stated that there is no longer a basis for the remedy contained in the order. Through the action announced today, the Commission has approved the petition.

• On July 5, the FTC issued a report entitled “Gasoline Price Changes: The Dynamic of Supply, Demand, and Competition.” The Report analyzes the many factors that influence fluctuations in the prices that U.S. consumers pay for gasoline at their local gas station. It examines a wide range of gasoline price factors – including the cost of crude oil, increasing national and international demand, and federal, state, and local regulations – all of which influence the prices consumers pay at the pump. One of the Report’s conclusions is that over the past 20 years, changes in the price of crude oil have led to 85 percent of the changes in the retail price of gasoline in the U.S., while other important factors have included increasing demand, supply restrictions, and federal, state, and local regulations such as “clean fuel” requirements and taxes.

Authored by:
Robert W. Doyle, Jr.
202-218-0030
rdoyle@sheppardmullin.com