IT mergers and acquisitions continue apace—but what is interesting this month is the variable mileage that the regulator is giving and getting from various deals that impact oil and gas and its technology providers. The biggest deal today, of course, being the Oracle’s thwarted takeover of PeopleSoft.
Thwarted, that is, until Oracle prevailed in a landmark lawsuit filed by the Department of Justice (DoJ) seeking to block the acquisition. The DoJ brought the suit under the 1914 Clayton Act which regulates potentially anti-competitive mergers. But DoJ failed to show that an Oracle/PeopleSoft merger would lead to a monopoly. Oracle successfully argued that SAP and Microsoft would carry forth the competitive torch. One can’t help wondering what the position would have been if Microsoft’s putative bid for SAP was under simultaneous FTC scrutiny.
The oil industry knows all about the anti-trust legislation. At the dawn of the 20th century, the US Government broke up the giant Standard Oil’s monopoly into smaller units to foster competition. At the tail end of the century, the pendulum swung back with a string of mega mergers. Each of which has been scrutinized by the Federal Trade Commission (FTC) for its impact on the consumer and the competition.
The FTC has just ‘told all’ in the form of a 260 page report entitled, ‘The Petroleum Industry: Mergers, Structural Change and Anti Trust Enforcement.’ The FTC emphasizes the timeliness of its study in the context of current record oil prices.
At current price levels, US gasoline prices at the pump are 85% dependent on the cost of crude oil—and are a sensitive issue, particularly in an election year. The FTC devotes ‘substantial resources’ to investigating, and in a number of instances, to blocking or modifying specific transactions. The FTC report sets out to ‘make more transparent how the FTC analyzes mergers and other competitive phenomena in the petroleum industry’.
The FTC gives itself a few pats on the back along the way. Mergers of private oil companies ‘have not affected the world wide concentration in crude oil ownership’. Despite some increase over time, concentration for most levels of the petroleum industry has remained ‘low to moderate’. ‘Intense and thorough’ FTC merger investigations and enforcement have ‘helped prevent further increases in industry concentration and avoid potentially anticompetitive problems and higher prices for consumers’. By allowing the mega mergers, the FTC has ‘helped industry achieve the economies of scale which have become significant in shaping the petroleum industry.’
FTC ‘tough on oils’
The FTC claims to be tough on oil mergers and has obtained ‘relief’ (i.e. watered down a merger proposal) at lower levels of industry concentration than in other industries. 25% of the FTC’s budget went on oil and gas mergers in 1990s. Since 1981 actions were brought against 15 mergers which in 11 cases resulted in ‘significant divestment’ and in four other the mergers were abandoned altogether.
And the service sector?
The FTC report on the oil business only addresses mergers of operating companies. There is another chapter at least to be written on intervention in service sector mergers and acquisitions. The FTC report equates ‘success’ in its anti-trust measures with low gas prices to the consumer. While this is a convenient measure it fails to address competition issues whose impact on industry may be more subtle. When a Halliburton acquires a Dresser, Schlumberger a SEMA Group or, IHS acquires PI who had just acquired Dwights, it is harder to predict the effect on the competition.
Back in 1995, when the FTC looked at the much smaller merger of Dwights and EnergyData, it deemed that this was likely to diminish competition in the oil and gas well information market. The FTC mandated that a copy of the Dwights dataset should be licensed to a competitor. Since then, the Dwights, PI, Petroconsultants and now CERA have all merged into one humongous provider of data, information, knowledge and what have you. While in the meantime, the li’l old Dwights’ data set has gone from Pennwell, to PennPoint to Penn Energy Data, which was unceremoniously wound up last year.
The recent kafuffle over AspenTech’s acquisition of Hyprotech has revealed an interesting dynamic in managing an FTC investigation. On one hand, it’s hard to believe that this relatively untested technology gets so much attention from the regulator. But this is where communication—and dare one say, hype, can have undesired side effects. The role of simulation in the i-field has been sold so well, that the competition is up in arms.
The real bind for a company engaged in enthusiastically communicating its message to the investment community (OK, hype if you will ) is that while matters are still sub judice, such enthusiasm may be used as ammunition by the plaintiffs. Thus SimSci just had to quote from Aspen’s press release which crowed somewhat about its ability to ‘continue to sell and develop our comprehensive offering of process industry software’ to cry ‘foul’ and kick off a whole new round of investigations.
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