Aloha Petroleum (“Aloha”), a Hawaiian corporation involved in both the bulk supply and retail sale of gasoline on the Hawaiian islands, is seeking to acquire eighteen retail gasoline stations on the island of Oahu currently owned by Trustreet Properties (“Trustreet”) as well as Trustreet’s fifty percent interest in a petroleum importing terminal on Oahu known as Barbers Point. Aloha presently owns its own retail gasoline stations on Oahu and the other fifty percent interest in the Barbers Point Terminal. The FTC has filed a complaint in the U.S. District Court for the District of Hawaii seeking a preliminary injunction against this acquisition (FTC v. Aloha Petroleum, Ltd.). The FTC contends that this transaction, which is not reportable under the Hart-Scott-Rodino premerger filing guidelines, would have anticompetitive effects in both the market for the bulk supply of gasoline and the market for the retail sale of gasoline.

According to the FTC’s complaint, all gasoline refined in or imported to Hawaii must be stored in petroleum terminals. There are only four such terminals capable of receiving out-of-state gasoline imports, all located on Oahu: Chevron, Shell, and Tesoro each own one and Aloha and Trustreet currently share the fourth, Barbers Point. Further, the ability to import gasoline is necessary to obtain a competitive price from the refiners in Oahu and thus necessary for the competitiveness of a bulk supplier. As such, there are only five competitively significant bulk suppliers in Hawaii: Aloha, Trustreet, Chevron, Shell, and Tesoro.

Gasoline is sold to the public in Oahu by retail stations that are either integrated (i.e. affiliated with bulk suppliers) or nonintegrated (i.e. independent stations with no affiliation with any bulk supplier). On Oahu, all five bulk suppliers operate their own integrated retail stations, including Aloha and Trustreet. Of these five bulk suppliers, only three, Aloha, Trustreet, and Tesoro, have sold gasoline to nonintegrated retailers. These nonintegrated stations generally charge lower retail prices than the integrated Chevron, Shell and Tesoro stations.

With respect to the market for the bulk supply of gasoline in Hawaii, the FTC claims that the proposed acquisition would substantially increase market concentration in an already highly concentrated market. As noted above, there are only five companies that have access to a petroleum terminal with the capability to import gasoline that is necessary to compete; Aloha’s acquisition of Trustreet’s fifty percent interest in the Barbers Point terminal would mean Aloha would have exclusive ownership of it and thus reduce the number of bulk suppliers with access to a terminal from five to four.

The FTC seems particularly concerned with the acquisition’s effect on sales from bulk suppliers to nonintegrated retailers. Since only Aloha, Trustreet, and Tesoro appear to sell to nonintegrated retailers, the acquisition would reduce the number of bulk suppliers selling to nonintegrated retailers from three to two.

With respect to the retail gasoline sales market in Oahu, the FTC asserts that the Aloha and Trustreet stations provide the lowest priced gasoline from integrated stations, that Aloha and Trustreet are each other’s closest competitors, that they constrain each other’s ability to raise prices, and that this acquisition would substantially increase Aloha’s market share. As such, in the FTC’s view, Aloha’s acquisition of Trustreet’s stations would likely result in an increase in prices to consumers.

On the eve of the trial, the case settled. On September 6, 2005, the FTC asked the Federal District Court for the District of Hawaii to dismiss the Commission’s complaint seeking an injunction to block Aloha’s acquisition of a half interest in the Barbers Point terminal. The Commission forced Aloha to enter into a 20 year throughput agreement giving third-party Mid Pac Petroleum LLC substantial rights to use the Barbers Point terminal. The Commission believes the agreement will restore competition threatened by the acquisition.

Authored by:

Anik Banerjee