Sale of 18 Mahalo
gas stations delayed

The FTC says the deal could
hurt competition and lead to
higher gas prices on Oahu

Aloha Petroleum Ltd.'s proposed $18 million acquisition of 18 Mahalo gas stations and full ownership of a gasoline import terminal would reduce competition and likely lead to higher gas prices for consumers on Oahu, federal regulators said yesterday.

Lawyers for the Federal Trade Commission have filed for a temporary restraining order in Honolulu federal court to prevent the sale. The deal had been scheduled to close yesterday before midnight, but has now been put on hold pending a decision on the matter, which is expected Tuesday.

Aloha has vowed to fight the FTC's attempt to block the deal, which Aloha's president and chief executive, Bob Maynard, said would promote competition and benefit consumers.

"Oahu motorists will benefit from the opportunity to purchase Aloha's competitively priced gasoline at a greater number of locations," he said. "This is exactly what our purchase of Mahalo would do."

But the FTC offered a strikingly different picture, saying the deal would reduce options for consumers.

"The Mahalo and Aloha stations are each other's closest competitors as low-priced retailers of gasoline on Oahu," the FTC said in a statement. "This acquisition will end that competition and give Aloha the ability to raise prices."

The FTC also argued that the deal would lead to higher prices for wholesale gas sold to firms that don't operate refineries or have the ability to import gasoline. These nonintegrated stations would have fewer suppliers of bulk, or wholesale, gasoline.

Gas stations that could take the hit include Costco, Union 76 , Lex Brodie's and Freedom Gasoline, the FTC said.

Under the proposed deal, Aloha would acquire not only 18 Mahalo gas stations from Florida-based Trustreet Properties Inc., but also Trustreet's interest in a gasoline import terminal at the former Barbers Point on Oahu, which the companies jointly own. Although Aloha and Trustreet own the terminal together, the companies compete in the wholesale market and the deal would remove a supplier of bulk gas to nonintegrated retailers, the FTC said.

Nonintegrated retailers already have few sources for bulk gasoline, the FTC said.

Although Chevron Corp. operates a refinery on Oahu, the FTC said, it does not sell gasoline to the nonintegrated retailers.

Likewise, the FTC said, Royal Dutch Shell plc owns and operates an import terminal, but the company only sells gas shipped into the terminal at Shell stations.

Only Tesoro Corp., which operates a refinery here, and Aloha and Trustreet sell gasoline to both integrated retailers and nonintegrated ones, the FTC said. The deal would therefore reduce the number of companies that supply nonintegrated retailers from three to two, the FTC said.

"The proposed acquisition would substantially increase market concentration in the already highly concentrated market for marketing of gasoline by bulk suppliers, and in particular sales to nonintegrated retailers," the FTC said.

This, the agency said, would have consequences throughout the islands.

"All refined petroleum products supplied to Hawaii's outer islands come from Oahu, which is the only island with refineries and with terminals large enough to supply the rest of the state," the FTC said. "Accordingly, any combination of bulk suppliers on Oahu is likely to impact the other Hawaiian islands as well."

An Aloha spokeswoman declined to comment on the FTC's lawsuit late yesterday. But Aloha's Maynard previously said he was "surprised and dismayed that the FTC would issue a decision that has great potential to hurt a small, local company."

"In a state where small business has been the backbone of the economy, an acquisition like this should be encouraged," Maynard said.