Canada's Competition Bureau recently released a Backgrounder
explaining the results of its review of the acquisition by Superior
Plus LP of various propane assets of Irving Oil Limited/Irving Oil
Marketing Limited. Notwithstanding acceptance by the Commissioner
of Competition that the acquisition would result in efficiencies,
the Commissioner forced Superior to divest itself of certain Irving
propane-storage assets to another Newfoundland competitor.
Timeline And Remedy
In December 2007, the Bureau concluded that the transaction
would likely prevent or lessen competition substantially in the
retail supply of propane in Central and Western Newfoundland for
commercial and industrial use. A consent agreement was registered
with the Competition Tribunal in May, 2008, requiring Superior to
divest two bulk propane storage tanks and a tank truck in the
relevant markets, and to permit Irving customers to terminate
certain supply agreements without penalty1. Superior
signed an agreement to sell the divested assets to North Atlantic
Petroleum (NAP) on October 2, and the divestiture was completed on
January 23, 2009.
The Bureau's concerns were confined to the effects on the
retail sale of propane for commercial and industrial use (about 80%
of total propane use in Newfoundland). The Bureau was not concerned
about propane for home or motor fuel use because of provincial
regulation of retail prices for these uses. The Bureau examined two
relevant geographic markets: Western and Central Newfoundland.
The only remaining competitor in Central Newfoundland was in
fact NAP, which although active, had no propane storage assets in
the market. The merging parties were the only competitors in
Western Newfoundland. The Bureau found that new competitive entry
into either market was unlikely within its two-year window for
The Bureau concluded that Superior's post-merger market
position would have allowed a significant unilateral exercise of
market power in both markets. In Central Newfoundland, the Bureau
also found the potential for coordinated effects due to the
presence of a number of facilitating factors, including a degree of
price transparency, frequent purchases by many small users, and
multi-market competition between competitors. While the
Backgrounder acknowledges that these factors continue to be present
with the required sale of assets to NAP, it takes the view that
coordination is now materially less likely.
The Backgrounder indicates that NAP's purchase of the
divested assets represented an opportunity to significantly
increase its presence in Central Newfoundland and to enter the
business in Western Newfoundland. The Backgrounder does not address
why, in view of NAP's significant upstream position (NAP has
the only oil refinery in the province) and its retail propane
operations in Eastern and Central Newfoundland, NAP would have been
unwilling to enter the business in Western Newfoundland, absent
acquisition of the divested assets.
Superior and Irving provided the Bureau with detailed
efficiencies claims that were considered by the Bureau and external
experts during the review of the transaction. Although the Bureau
agreed that efficiency gains would likely arise from the
transaction, it concluded that such gains would not likely be
sufficient to offset the effects of any substantial lessening or
prevention of competition within the meaning of section 96 of the
1. The public version of the Consent Agreement is
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