Valero Petroleum company announced on Sept. 18, 2017 that it would abandon its plans to acquire the Plains All American Pipeline terminal facilities in Martinez and Richmond, California. These facilities appear to be the last independent petroleum distribution terminals in Northern California.
Valero's sudden abandonment of its attempt to acquire the Martinez and Richmond terminals came only after it appeared to have succeeded at each of several stages of the antitrust review and litigation over the acquisition. It first persuaded the Federal Trade Commission (FTC) not to intervene to block the transaction, and later received two favorable decisions in its case against the State of California, which had taken the unusual step of ignoring the FTC's views and filing its own suit in federal court in San Francisco to enjoin the acquisition as a violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. The State argued that the deal would allow Valero to exercise undue control over the market for gasoline and manipulate it to drive up downstream prices. U.S. District Judge William Alsup denied the AG's application for a temporary restraining order on July 12, 2017, and later denied the State's motion for a preliminary injunction on Aug. 23, 2017. The California AG opposition remained steadfast and trial on the merits was scheduled to begin Jan. 8, 2018.
The Order and Valero's Subsequent Announcement
The district court's order denying the State's motion for a preliminary injunction was kept under seal until September 17, when the Court unsealed and posted most of the Order. At that point, it became clear that, in spite of its litigation success to that point, Valero's likelihood of ultimately prevailing and finalizing the acquisition was far from certain. The Order reveals that with regard to the likelihood on the merits, notwithstanding the FTC's extensive investigation clearing the transaction for approval, Valero faced an uphill battle. The Order states:
"California has at least raised serious questions regarding whether the proposed transaction will have anticompetitive effects in the market for bulk sales of gasoline and other [liquid petroleum products (LLPs)] in Northern California and Northern Nevada. Valero already controls one of seven gathering lines accounting for approximately eighteen percent of the throughput capacity running to the KMSA. Now – through Valero Partners – it will control a second, which will give it another eleven percent of the throughput capacity. The danger is, of course, that Valero will use this control to further its own economic interest. If the sale closes, Valero will control more pipeline access into the KMSA than all but one company, Tesoro...It will control the last independently operated gathering line with unused capacity, and the only one capable of delivering gasoline and other LPPs during periods of increased demand…This raises serious concerns that the transaction will lead to higher prices at the pump. Defendants make several arguments to the contrary, none of which overcome these serious concerns."
Shortly afterwards, Valero swiftly announced it would cancel the transaction "rather than endure the continued uncertainty that a lengthy trial would create" and the required expense to defend the transaction.
Importantly, this case confirms that, even if the federal government declines to intervene, California will continue to scrutinize future midstream and downstream oil industry mergers and acquisitions under federal and state antitrust laws. Companies contemplating future transactions that will have an impact on the state should consider not only what it will take to satisfy the FTC but also look closely at the potential effects on the Californian consumer at the gasoline pump.