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The Federal Trade Commission is expected shortly to expand its investigation of Shell Oil Co.’s recent acquisition of Pennzoil-Quaker State Co., though the deal still appears headed for approval. Sources said the FTC is likely to issue later this month or in May a second request for more details on the deal. That means antitrust regulators have questions with parts of the transaction. It also delays completion of the deal. Under the Hart-Scott-Rodino Antitrust Improvements Act, a company may not close a deal until 30 days after it complies with the document demand. “There are some antitrust problems there,” said one lawyer following the deal. This lawyer said he expected the FTC to concentrate on the retail parts of the merger. Pennzoil owns the 2,000-outlet Jiffy Lube franchise, while Shell owns about 10 percent of its 9,000 branded gas stations in the U.S. It also owns 50 percent of a joint venture that refines and markets products through 13,000 service stations in the eastern and southern U.S. The lawyer said the FTC will want to ensure there are no local markets where Shell would dominate the vehicle lubrication business. A second lawyer following the merger said the FTC will issue a second request also because at $3 billion the transaction is too large to let pass without additional investigation. Yet this source expects the FTC to clear the merger in about six months, with no restrictions. “Oil changes are certainly an issue that will come up,” the lawyer said. “But there are hundreds of other places to get an oil change. I really don’t think there will be a problem here.” Officials for Shell, a unit of Royal Dutch/Shell Group, and for Pennzoil expressed confidence the deal will win FTC approval. Shell and Pennzoil press officers said the companies do not expect problems clearing FTC review, while declining to comment further. Fadel Gheit, an analyst at Fahnestock & Co. in New York, said the lubricant side of the deal should not ring antitrust alarms because Shell only has about 3 percent of the market for consumer motor oil. After the deal, it would have about 35 percent of the market, he said. “If the FTC did not have any problems with Pennzoil buying Quaker, then it should not have a problem with Shell,” Gheit said. “Nothing is changing. It is not creating a monopoly.” Gheit said the FTC could raise antitrust concerns about the oil change market, but at worst that would result in Shell selling a few gas stations. “It wouldn’t make or break the deal,” he said. “It would be the exception rather than the rule.” A third antitrust lawyer said close scrutiny of the deal was likely because the decline in mergers over the past few years has meant that antitrust regulators have more time to spend on each transaction. “Stuff that would have been under the radar screen is being looked at more closely,” the lawyer said. “It would not surprise me if there was a problem with this transaction.” Geeta S. Agashe, a director in the petroleum and energy practice at the Kline & Co. consulting firm, said Shell after the merger will be bigger in the consumer motor oil sector than the combined sales of BP Castrol and Valvoline. BP Castrol, the No. 2 producer of motor oil, is owned by BP plc of London; Valvoline, the No. 3 producer, is a unit of Ashland Inc., a Covington, Ky.-based petrochemical company. But she also said there are many other players, including brands produced by Chevron-Texaco Inc., Conoco-Phillips and ExxonMobil Corp. “This is a very competitive market,” Agashe said. It also is a market where major retailers such as Wal-Mart Stores Inc. hold enormous power over the producers, further evidence that the merger does not violate antitrust laws. “The mass merchandisers dictate the brands they take and how much they pay,” Agashe said. “It is becoming more of a commodity.” Agashe predicted more consumer oil market mergers if the Shell-Pennzoil deal wins approval. “We really feel the market is not rational yet,” she said. Shell agreed March 25 to acquire Pennzoil for $22 per share in cash. It also agreed to assume $1.1 billion of debt. Copyright (c)2002 TDD, LLC. All rights reserved.

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