HARRISBURG, Pa. -- The state of Pennsylvania was recently the plaintiff in a lawsuit seeking to prevent the acquisition of Gulf Oil LP by ArcLight Energy Partners Fund VI LP from convenience-store retailer Cumberland Farms Inc.
According to a complaint filed on Dec. 28, 2015, in U.S. District Court for the Middle District of Pennsylvania, “The proposed acquisition … would substantially lessen competition in three markets in the Commonwealth.”
Boston-based ArcLight is a major private-equity firm focused on energy infrastructure investments. It owns and operates 12 refined petroleum products storage terminal facilities in Pennsylvania.
ArcLight affiliate Chelsea Petroleum Products Holdings LLC completed its purchase of Gulf Oil LP from Cumberland Farms Inc. on December 29.
In a related transaction, Blue Hills Fuels LLC, another ArcLight affiliate, purchased Gulf's Assured Dealers business, which collects rent from more than 200 owned or leased, but non-operated, independently franchised gas stations under the Gulf or Mobil brand that also purchase branded product under contract from Gulf.
Gulf is a terminal operator and wholesaler of refined petroleum products. It owns a network of 12 refined-product storage terminals. Gulf's distribution network includes gas stations, wholesale distributors and commercial and industrial accounts. It distributes motor fuels, both gasoline and diesel, to more than 2,300 branded outlets, as well as 1,000 private-label retail outlets operated by major retailers.
The three markets identified in the court documents are Altoona, Harrisburg and Scranton, Pa. The merger would eliminate competition between the defendants in those markets, the court documents said, “increasing the likelihood that defendants would unilaterally exercise market power in the relevant markets; and … enhancing the likelihood of collusion or coordinated interaction between or among the remaining firms in the relevant markets.”
“Plaintiff seeks permanent injunctive relief to prevent, restrain and/or remedy the adverse effects on competition and consequent harm to the public interest that would result from ArcLight’s acquisition of Gulf,” said the court documents.
The state asked the court to “preliminarily and permanently enjoin ArcLight from acquiring Gulf or from combining its own and Gulf’s assets and operations in any other manner” and award the state “its reasonable costs and attorneys’ fees.”
On December 28, the Federal Trade Commission (FTC) requires ArcLight to divest its ownership interest in four light petroleum product terminals in Pennsylvania as part of a settlement resolving the charges that ArcLight’s acquisition of Gulf would likely be anticompetitive.
The FTC alleged that if the acquisition took place as proposed, it would increase concentration in three Pennsylvania terminal markets that are already highly concentrated: Altoona, where ArcLight would own the only terminal handling gasoline and one of two terminals handling distillates; Scranton, where ArcLight would own one of two terminals handling gasoline and distillates; and Harrisburg, where ArcLight would own one of two terminals handling gasoline and one of three terminals handling distillates.
The FTC also alleged that competitors that want to enter the Altoona, Scranton and Harrisburg markets would be unlikely to overcome the high costs and other barriers to entry associated with building a new terminal to counteract the acquisition’s anticompetitive effects. ArcLight has significant excess terminal capacity in these markets, which also would discourage new competitors, according to the complaint.
Under the terms of the proposed settlement, ArcLight and Gulf agreed to divest to Arc Logistics, New York, four of Gulf’s Pennsylvania LPP terminals: one in Altoona; one in the Scranton market; and one each in Mechanicsburg and Williamsport in the Harrisburg market.
To ensure that the divested terminals will remain viable and competitive during their transition in ownership, the order requires ArcLight to maintain minimum throughput volumes at the terminals for two years; to supply Arc Logistics with renewable fuels that may be blended with LPPs for five years; and to allow any ArcLight and Gulf customers in the Altoona, Scranton, and Harrisburg markets to cancel their terminaling service contract without penalty for six months after the divestiture, so that Arc Logistics can compete for these customers.
The court ordered ArcLight to comply with the FTC order and to pay approximately $24,600 in attorneys’ fees.
Framingham, Mass.-based Cumberland Farms is the owner and operator of nearly 600 convenience stores in eight states in the Northeast and Florida.
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