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Judge Lets Gas Merger Move Ahead
Tuesday May 29, 5:34 pm ET
By Tim Korte, Associated Press Writer
Federal Judge Allows Western Refining-Giant Industries Merger Over FTC Objection

ALBUQUERQUE, N.M. (AP) -- A federal judge on Tuesday denied the Federal Trade Commission's efforts to block a proposed $1.3 billion merger between Western Refining and Giant Industries, clearing the way for the Southwest gasoline companies to join forces.

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Western Refining Inc. president Paul Foster said the decision by U.S. District Judge James Browning, allowing the merger to proceed, will help the companies keep fuel prices lower by combining resources.

"We believe a Western-Giant combination is pro-competitive and provides important benefits to the companies' stakeholders, including our customers, shareholders and employees," Foster said in a news release.

Hours later, the FTC requested a stay and said it was moving ahead with an appeal.

"The district court's order is based on an expedited and abbreviated hearing that took place in under a week," FTC spokesman Mitchell Katz said. "The commission is now reviewing the court's order and considering its options."

Browning also dissolved a temporary restraining order issued April 13.

Western, based in El Paso, Texas, and Giant Industries Inc., based in Scottsdale, Ariz., said they agreed with the FTC not to complete the deal before noon Thursday, pending the federal agency's anticipated appeal to the 10th U.S. Circuit Court of Appeals.

"Western and Giant noted that absent a ruling from the 10th Circuit enjoining this merger, the companies may close the transaction at any point after noon Mountain Time on Thursday," the news release said.

Foster added: "There is no basis for the FTC to appeal the district court's decision. We remain confident in our position and look forward to closing the transaction."

FTC lawyers argued in court that the merger would reduce competition and lead to higher prices for the bulk supply of gasoline in 11 counties of northern New Mexico, where averages have hit record highs -- well above $3 per gallon -- as the summer travel season opens.

Lawyers for Western and Giant replied that the sale will lower gasoline costs. They said the companies already have been cooperating for years.

Chris Erickson, associate professor of economics at New Mexico State University, said it's difficult to know who's correct -- the FTC or the gas companies.

He noted a report released last week by the Government Accountability Office charted more than 2,600 mergers within the U.S. petroleum industry in the 1990s, leading to higher wholesale gasoline prices -- 1 to 7 cents per gallon.

The report said the impact of mergers since 2000 was unknown, and it noted the GAO's retrospective approach differed from the prospective analysis used by the FTC when studying any potential merger.

"It's guesswork," Erickson said. "But the fact is that in the refinery industry overall, a merger mania during the last decade increased the price of gasoline. Whether it applies directly to this merger is more difficult to say."

In November, the companies announced that Western would by Giant's stock for $77 per share. Giant Industries shareholders voted to approve the transaction on Feb. 22.

Western has a refinery in El Paso with a capacity of 124,000 barrels per day. It sells its products mainly in Texas, Arizona, New Mexico and Juarez, Mexico.

Giant owns two New Mexico crude oil refineries, a crude oil pipeline system, distribution terminals in Albuquerque and Flagstaff, Ariz., a trucking fleet and retail service station and convenience stores in New Mexico, Colorado and Arizona.

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As I write, WNR is up almost 11%. Earnings are in the morning.