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A knack for avoiding the antitrust pitfalls that plague its oil industry rivals is Phillips Petroleum Co.’s claim to fame in Washington, D.C., regulatory circles. Phillips will likely add to that record with the acquisition this week of Conoco Inc., though Phillips could be forced to sell a few assets. Exxon-Mobil Corp., BP and Chevron-Texaco Inc. have all found themselves mired in lengthy merger review proceedings, but Phillips has grown significantly in the last two years without raising alarm bells at the U.S. Federal Trade Commission. The latest deal, unveiled Sunday, is billed as a merger-of-equals with Houston-based Conoco, though Phillips shareholders will own a majority of the new ConocoPhillips. Like its previous acquisitions of BP’s Alaskan assets and of Tosco Corp. earlier this year, the Conoco acquisition is expected to secure antitrust approval with minimal divestitures. Phillips Chairman James J. Mulva said Sunday that he sees “no condition or requirement that will have any material impact” to their ability to close the deal. Antitrust and industry experts said they see few overlaps between the companies, which means the FTC is unlikely to seriously object to a deal that would make Phillips, based in Bartlesville, Okla., the largest U.S. refiner. “I don’t see any pressure on the company in terms of selling a refinery, though there could be some pressure if they are retail marketing in the same areas as Phillips and Tosco,” said Fadel Gheit, an analyst at Fahnestock & Co. in New York. The sale of even a few hundred service stations does not change the economics of the deal, Gheit added. “The benefits will more than exceed any of the costs from the divestiture,” he said. A divestiture could even help Phillips by letting it raise cash to pay down its high debt load, Gheit said. A press officer for Phillips was traveling and could not be reached for comment. A Conoco press officer did not return calls seeking comment. The rather modest divestitures expected in Conoco-Phillips contrasts sharply with the more than 2,400 service stations Exxon Corp. and Mobil Corp. had to sell, or with the Alaska operations BP unloaded. Antitrust lawyers said the difference is that Phillips has chosen merger partners with complementary operations rather than overlapping businesses. “People know if you do a big flashy deal with a lot of overlap that you are bound to get attention,” said Mary Azcuenaga, a partner in the Washington office of the Heller Ehrman White & McAuliffe law firm and a former FTC commissioner. “The smaller deals in many cases are less troubling.” That means the best strategy often is to acquire several modest companies than go for the megadeal, she said. “If you do a number of small deals that don’t raise antitrust concerns, that can be a smart way to go about it,” Azcuenaga said. “It is a good strategy.” David Balto, a partner in the Washington, D.C., office of White & Case, and who was at the FTC for many of the oil industry megamergers, said the cost savings expected from the deal aids Phillips. “All the consolidation in the oil and gas industry is because there are efficiencies that need to be achieved,” Balto said. Phillips and Conoco expect $750 million in cost savings in the first year, thanks to more efficient exploration and production activities. They also will eliminate duplicative administrative jobs. Consolidation has continued in the oil patch despite a 1999 warning from then-FTC Chairman Robert Pitofsky that the antitrust agency would be leery of more oil industry consolidation. Pitofsky made his remarks in a commentary that accompanied the FTC order approving the Exxon-Mobil merger. Steven Newborn, a partner at Clifford Chance Rogers & Wells in Washington, D.C., called Pitofsky’s comments “scare tactics,” noting that antitrust enforcers are required to evaluate each deal on the merits. “The oil industry is generally unconcentrated still and economic theory says mergers in unconcentrated industries will not cause problems,” Newborn said. Despite the favorable antitrust picture, the FTC is still expected to take up to six months to review the deal. One source noted that the transaction is enormous and encompasses numerous markets. Just processing all the paperwork and document requests could take months. The deal already has also gotten attention on Capitol Hill. Senate Judiciary antitrust subcommittee chairman Herb Kohn, D-Wis., and ranking member Mike DeWine, R-Ohio, issued a joint statement Monday saying they plan to monitor the regulatory review of the merger. “All Americans who depend on their cars from everything from commuting, to shopping, to visiting family and friends have a strong interest in the survival of vigorous competition in the oil industry,” they said. “We need to closely scrutinize this deal to make sure that the merger will lead to greater competition, not just more consolidation.” The deal values Conoco at $15.2 billion. That is more than Phillips paid for its other acquisitions. The BP Alaska assets cost $7 billion while Tosco went for $9.3 billion. Copyright (c)2001 TDD, LLC. All rights reserved.

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