COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 07/LM/Feb01
In the large merger between:
Chevron Corporation
and
Texaco Inc.
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Reasons for the Competition Tribunal’s Decision
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APPROVAL
1. On 11 April 2001 the Competition Tribunal issued a merger clearance certificate
approving the merger between Chevron Corporation and Texaco Inc. without
conditions in terms of section 16(2)(a). The reasons for the approval of the merger
appear below.
The parties
2. Both companies are two fully integrated oil companies incorporated in the US and
carrying on business globally in the petroleum industry.
3. The primary acquiring firm is Chevron Corporation (“Chevron”), a fully
integrated US oil company whose activities include exploration and production of
mineral oil and gas, the operation of refineries, manufacture, supply and
distribution of refined petroleum products , as well as the manufacture and supply
of chemical products. It has a number of worldwide subsidiaries. However, for
the purposes of this merger analysis, only those of its subsidiary firms conducting
activities in South Africa in which it has a significant interest, will be alluded to.
4. The primary target firm is Texaco Inc. (“Texaco”), which, together with its
wordwide affiliates, is active in the exploration and production of mineral oil and
gas, the manufacture of fuels and lubricant products, the operation of trading,
transportation and distribution facilities as well as the production of alternative
forms of energy for power and manufacturing. Texaco also has extensive overseas
subsidiaries. Its sole interest in the South African context for the purposes of this
analysis, is limited to its joint shareholding in Caltex Oil (Pty) Ltd, together with
Chevron.
5. Neither Texaco nor Chevron themselves provide any services or sell any products
within South Africa directly but do conduct activities in SA indirectly via three
entities which they control:
a. Chevron Oronite Societe Anonyme (“ Chevron Oronite”)
This is a wholly owned subsidiary of Chevron Overseas Petroleum Inc, the
ultimate shareholder being Chevron.
b. Chevron USA Inc.
TEMA, or the Technology Marketing branch, is a branch of Chevron .
c. Caltex Oil SA, (“Caltex”) owned by Caltex Corporation in which
Chevron and Texaco each indirectly hold a 50% shareholding, therefore
Caltex is jointly owned and controlled by both Texaco and Chevron.
The merger transaction
6. This merger is in pursuance of a worldwide merger agreement concluded between
Chevron and Texaco. The merger has been approved by the EU Commission but
still awaits approval in the US from the appropriate antitrust authorities.
7. The merger is being effected via Keepep Inc, a merger subsidiary of Chevron. On
the effective date, Keepep will merge into and with Texaco, terminating the
separate existence of the merger subsidiary and leaving Texaco as the surviving
company and a wholly owned subsidiary of Chevron. The merged entity will be
renamed ChevronTexaco Corporation (“CTC”).
8. In terms of the merger agreement, each share of Texaco stock will be converted
into the right to receive 0.77 of a share of Chevron common stock. Chevron
shareholders will retain their shares in Chevron. Once the merger is effected, the
shareholders of Texaco will own 39% of the shares in CTC while the shareholders
of Chevron will hold 61%.
EVALUATING THE MERGER
The relevant market
9. Chevron and Texaco compete inter se in the refining and marketing of petroleum
products worldwide but do not compete in this area within the South African oil
products worldwide but do not compete in this area within the South African oil
industry. Caltex conducts these activities on its own account in South Africa and
independently of its parent companies. Caltex’s oil refining and marketing
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activities in SA will therefore remain unaffected by the merger. Caltex does
however provide certain products to customers in South Africa, as and when
required by its shareholders, Texaco and Chevron.
10. Insofar as the South African context is concerned, the Commission have identified
four separate and distinct markets as follows:
i.Lubricating Oil Additives
ii.Catalysts
iii.Sale of jet fuel
iv.Sale of residual fuel and marine lubricants (marine products).
11. The Tribunal agrees with this categorization of the relevant markets. We will now
proceed to examine each of these markets in turn.
Impact on competition
i. Lubricating Oil Additives
12. Chevron Oronite sells fuel and additive products in South Africa to finished oil
manufacturers for blending with base oil into a finished lubricant product and then
for onsale to original equipment manufacturers. 1 Caltex is one such
manufacturer who buys this product from Chevron Oronite and then sells the
finished product to motor vehicle manufacturers. 2 Chevron Oronite competes
with three other multinational additives companies, Lubrizol, Infineum and Ethyl,
who will submit tenders, along with Chevron Oronite, to provide product.
Therefore, additive customers could purchase from any of these alternative
sources of supply, as well as from foreign companies. 3 In any event, neither
Texaco nor its affiliates directly sell any products in SA that are interchangeable
with Chevron Oronite’s additives.
ii. Catalysts
13. TEMA, a branch of Chevron U.S.A. Inc., sells catalyst pellets which basically aid
in the process of refining of crude oil to finished petroleum products. TEMA sells
catalysts in the USA to National Petroleum Refineries of South Africa (Pty) Ltd
(“NATREF”) which then imports the product into South Africa. Competitors of
(“NATREF”) which then imports the product into South Africa. Competitors of
1 Additives are chemical substances added to petroleum products to impart or improve certain properties.
Bulk additives are a feedstock in the manufacturing process of lubricating oil.
2 The finished product is used as a lubricant in diesel and petrol engines.
3 The parties also state that Chevron’s control of Chevron Oronite does not mean that Chevron or its
subsidiaries will purchase exclusively from Chevron Oronite, necessarily, but may do so from a competitor,
if their prices happen to be cheaper.
3
TEMA include ExxonMobil Research and Engineering and Criterion Catalyst
Company. According to the merging parties, neither Texaco nor any of its
subsidiaries sell this product or any substitutes thereof in South Africa.
14. Accordingly, there is no product overlap in the first two markets between the
activities of the merging parties and those they conduct via their subsidiaries in
South Africa.
iii. Sale of Jet Fuel
15. Texaco and Chevron, through their subsidiaries, market and sell jet fuel to foreign
airlines worldwide. An international bid process ensures Texaco and Chevron can
bid for air contracts along with other major commercial jet fuel competitors.
Contracts are awarded on an airportbyairport basis and once awarded, a contract
is concluded between either Texaco or Chevron and the particular foreign airline.
16. Jet fuel is a largely homogenous commodity, subject to stringent quality
specifications by international authorities. Accordingly, purchases of jet fuel are
always based on price. Airlines are therefore likely to shift suppliers in response
to better prices.
17. Local oil companies do not sell jet fuel directly to foreign airlines but would
supply them with jet fuel when foreign airlines are due to call at a South African
airport. In such circumstances, their international office will contact their local
subsidiaries in SA and advise them of a particular airline’s fuel requirements. In
this way, Caltex is notified by Chevron or Texaco, as the case may be, of their
respective clients’ requirements for jet fuel. This is then physically delivered at
either Johannesburg or Cape Town international airports. Caltex then invoices
either Chevron or Texaco for physical supply of product, akin to an “intragroup
sale”. The transaction occurs outside South Africa. Chevron and Texaco
sale”. The transaction occurs outside South Africa. Chevron and Texaco
themselves do not have the facilities to physically deliver the product.
18. Caltex sells jet fuel to one major customer, South African Airways (“SAA”) on its
own account in competition with other oil companies, such as BP, Shell and
Total. The absence of local facilities ensures Chevron and Texaco do not compete
in the South African market and they do not sell jet fuel to SAA or any other
South African customers. Therefore the merger will have no effect on Caltex’s
sale of jet fuel to SAA. 4
4 This was confirmed by a major local airline. Local oil companies do not sell jet fuel directly to foreign
airlines but would make jet fuel available via their international office contacting their local subsidiaries in
SA and advising them of fuel requirements.
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19. Accordingly, there are no competition concerns in this market. Jet fuel is merely
made available in SA via Caltex to foreign airlines but the essential transaction
occurs outside South African borders. The merging entities have no infrastructure
or facilities in South Africa therefore do not compete for the supply of jet fuel in
the South African market to local customers.
20. The Tribunal endorses the Commission’s view that no competition concerns are
raised in respect of markets (i) to (iii). We now turn to the fourth market where
the Commission identified a product overlap and where some concerns were
raised by customers.
iv. Sale of Marine Products
21. This market comprises marine fuel (residual fuel) and marine lubricants. Residual
fuel is a byproduct of refined crude oil and used as a marine fuel and an
industrial fuel. 5
22. By means of a tender process, supply agreements are concluded between a marine
lubricants supplier and a particular shipping line for the supply of that vessel’s
worldwide network requirements.
23. Chevron and Texaco market these products worldwide via FAMM, (Fuel and
Marine Marketing LLC) a joint venture set up by them to sell marine products to
shipping lines in over 100 countries.
24. The commission identified some product overlap here since Caltex sells marine
products in its own name to local marketers, who onsell it to the endcustomer,
the foreign vessels, which are also FAMM customers.
25. When a vessel is due to call at a South African port, FAMM notifies Caltex who
will arrange for the product to be delivered to the vessel. Invoicing and payment
is effected outside SA by FAMM itself. Accordingly, Caltex sells these products
on its own account to FAMM who onsells it to major shipping lines who happen
to be docking at SA ports.
26. Where marine fuels are required on a spot basis 6 along the shipping vessel’s
26. Where marine fuels are required on a spot basis 6 along the shipping vessel’s
particular trading route, the international vessels will contact Caltex (as well as
Shell, BP, etc) via local marketers or agents, notifying them of their fuel
requirements. The agents will obtain quotes from all suppliers of marine fuel
5 Industrial fuel is a land sale fuel used for industrial purposes. It falls out of the analysis since neither
party is active in this market within South Africa. Lubricants are primarily used to lubricate marine diesel
engines as well as for some onshore applications.
6 A onceoff purchase of product for immediate delivery.
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(including Shell, BP and Caltex) and those who can provide the most cost
competitive supply of fuel will provide fuel to these vessels on a spot basis, once
the particular vessel docks at the appropriate local port along its route. 7
27. Accordingly, FAMM supplies marine products on a worldwide basis through pre
arranged, longterm contracts. In South Africa, it might transact through Caltex
who will arrange for supply to FAMM’s customers locally. However, vessels may
prefer to dock at specific ports and obtain their marine product supplies on a spot
basis from local suppliers such as Caltex, Shell or BP via local agents or
marketers.
28. In respect of marine products, even though Caltex does supply foreign vessels to a
limited extent, it does not compete on the same scale as FAMM, which supplies
marine products directly to foreign vessels on a worldwide basis. The Tribunal is
therefore of the view that there are no major competition effects in this market
and the merger will not alter the status quo.
29. Insofar as marine product contracts are awarded on a worldwide basis, the
geographical market is global. Where foreign vessels transact with local agents
directly, by purchasing fuel on a spot basis, customers still have the ability to
source from a global pool of supply should any individual port not meet their
requirements or should that supplier’s fuel be too expensive.
Barriers to Entry
30. The parties advise that in relation to the sale of residual fuels, any new entrant
would require capital to purchase marine fuels from the refineries to be able to
sell to their customers. Even with additional storage and transportation costs, this
would not present significant impediments provided custom can be secured. No
tariffs or regulations apply. Similarly in respect of the sale of marine lubricants,
the parties report that the finished blended product could be easily imported by a
the parties report that the finished blended product could be easily imported by a
new entrant with minimal duties applicable, alternatively market entry would
involve purchasing base oils and additives and blending them together. Barriers to
entry are accordingly low.
Countervailing Power
31. There is a significant degree of countervailing power present in the marine
products market. The shipping vessels are able to use their vast international
networks to optimally source marine lubricants and fuels along their trading
routes all over the world.
7 Customer concerns in this regard are dealt with under vertical integration.
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Nature and Extent of Vertical Integration
32. By virtue of the fact that Caltex and Chevron Oronite are controlled by the
shareholders of the merging companies and make product available by supplying
to their customers within South Africa, there is a potential for vertical integration
issues to arise. In the additives market, the fact that Chevron Oronite competes
with many other multinational additives companies, has already been dealt with.
33. In the marine products market, two local customers of Caltex raised the concern
that since Caltex supplies residual fuel mainly at its Cape Town port from its
Cape Town refinery, Caltex could raise prices or decide to supply FAMM only
and not the local marketers, effectively cutting off supply at the CT port.
34. The parties allayed these concerns by stating that local marketers could in the
event of any vertical foreclosure effects or other attempts by the merging parties
to exploit their market power, just as easily source product from any of the other
oil companies present in SA such as Shell, BP, or Engen. The parties state that
marketers are not precluded in the above case from sourcing fuel from these other
oil companies, who could merely ship fuel from their refineries to the Cape Town
harbour, alternatively obtain product from the Caltex refinery by means of an
exchange of product. (agreement whereby Caltex agrees with say, Shell, that Shell
will supply product at Caltex’s refinery without physical delivery having to take
place).
35. In any event, these and other vertical threats such as price collusion are present to
the same extent as ever before. Caltex has been jointly controlled by Chevron and
Texaco for some time and the merger does not change the status quo or conditions
of competition in the market. There is furthermore a sufficient degree of
competition in all the product markets already to offset any vertical integration
competition in all the product markets already to offset any vertical integration
concerns. There are therefore unlikely to be any new vertical considerations
arising as a result of this merger.
Conclusion
Neither Texaco nor Chevron directly conduct any activities in South Africa. Those
activities conducted by subsidiaries of the merging parties in each of the four markets
described above within South Africa do not raise competitive concerns for the reasons
expressed. The joint control exercised by the merging parties over Caltex will not be
altered by the acquisition of the target firm, instead the status quo will remain unaltered.
Low barriers to entry into the marine products market and a large degree of
countervailing power by shipping vessels would in any event check any abuse of market
power by the merged entity through Caltex. The Tribunal therefore endorses the
Commission’s view that this merger will not result in the substantial lessening or
prevention of competition in any market.
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_____________ 24 April 2001
D.H.Lewis Date
Concurring: N. Manoim, P. Maponya
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