Markets Wired

The Federal Trade Commission will require AmeriGas L.P. and Energy Transfer Partners L.P. (ETP), two of the nation’s largest propane distributors, to amend AmeriGas’s proposed acquisition of ETP’s Heritage Propane business as part of a settlement with the FTC. The settlement resolves FTC charges that the deal, as originally proposed, would have reduced competition and raised prices in the market for propane exchange cylinders that consumers use to fuel barbeque grills and patio heaters.

AmeriGas originally entered into an agreement with ETP to acquire ETP’s Heritage Propane business in October 2011 for $2.9 billion. The FTC’s settlement protects consumers by requiring AmeriGas to exclude ETP’s cylinder exchange business, Heritage Propane Express, from the sale.

AmeriGas is the largest propane distributor in the United States. It serves 1.3 million customers with 1,200 propane distribution facilities in all 50 states, and sells more than one billion gallons of propane a year. Both AmeriGas’s ACE division and ETP’s Heritage Propane Express division supply propane exchange cylinders nationally and regionally. ACE is the second-largest supplier, and Heritage Propane Express is the third-largest supplier of exchange services in the nation. Such exchange cylinders – which are often referred to as 20 pound DOT cylinders – are small, portable tanks pre-filled with propane. Consumers exchange empty tanks for pre-filled ones. Cylinder exchange has become popular because it is more convenient for consumers and retailers than direct refill options.

According to the FTC’s complaint, AmeriGas’s acquisition of ETP’s Heritage Propane Express business – as proposed in the original merger agreement – would have been anticompetitive and violated the Clayton and FTC Acts. The agency charged that the original deal would have substantially lessened competition in the nationwide market for distributing and selling propane exchange cylinders, as well as in several smaller regional markets. Specifically, according to the complaint, the acquisition would have reduced the number of companies that can supply propane exchange cylinder services to large multi-state chain retailers from three to two, with only Ferrellgas Partners, L.P.’s Blue Rhino division – the largest national provider – left as a competitor.

The complaint also states that the original deal would have eliminated competition because Heritage Propane Express has played a key role as a “maverick” in the industry, fostering competition by offering lower prices and better terms and conditions to retailers than either ACE or Blue Rhino.

AmeriGas and ETP settled the FTC’s charges by amending their sale agreement and agreeing to the terms of the consent order issued by the FTC. The settlement prevents AmeriGas from buying Heritage Propane Express. It also ensures that Heritage Propane Express continues to be a viable competitor by requiring ETP to maintain the viability of the business for two years unless it is sold before then. Further, since the Heritage Propane business that AmeriGas is acquiring provided certain support services to Heritage Propane Express, the order requires AmeriGas to continue to provide those services temporarily to ETP or a subsequent acquirer of Heritage Propane Express.

Because ETP has stated that it intends to sell Heritage Propane Express, the settlement also prohibits ETP from selling the business for two years without first gaining approval from the FTC. This enables the FTC to review a proposed sale even if it is not subject to statutory pre-merger filing requirements, and to ensure that Heritage Propane Express will remain a viable independent competitor after the sale.

To prevent AmeriGas and ETP from replicating the competitive concerns raised by their current sale agreement, the consent order also requires both parties to notify the FTC for 10 years if either wants to buy a cylinder exchange business with annual sales over $22 million. ETP has to provide this notification only as long as it owns a cylinder exchange business.

The Commission vote approving the complaint and issuing the consent order was 4-0. The order will be published in the Federal Register shortly and will be subject to public comment for 30 days, until February 13, 2012. Comments on the order can be submitted electronically.

NOTE: The Commission issues a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. A consent order is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.

(FTC File No. 121-0022)
(AmeriGas.final)