7-Eleven’s $21 billion deal to purchase Speedway chain called illegal by US Federal Trade Commission

7-Eleven store located in suburban Los Angeles. 7-Eleven Inc.’s purchase of the Speedway retail chain violates antitrust laws, the head of the US Federal Trade Commission (FTC) said. Image Credit: AP

Washington: 7-Eleven Inc.’s purchase of the Speedway retail chain violates antitrust laws, the head of the US Federal Trade Commission (FTC) said, casting doubt over the future of the $21 billion deal that closed Friday.

FTC Acting Chairwoman Rebecca Kelly Slaughter and her fellow Democratic commissioner said the agency would continue to investigate the acquisition even after 7-Eleven announced it had completed the deal.

“We have reason to believe that this transaction is illegal,” Slaughter and Commissioner Rohit Chopra said in a statement. The “decision to close under these circumstances is highly unusual, and we are extremely troubled by it.”

7-Eleven’s parent, Tokyo-based Seven & i Holdings Co., agreed in August to buy 3,900 Speedway outlets from Marathon Petroleum Corp. to clinch a dominant position of almost 14,000 stores in the U.S. and Canada. The transaction gives 7-Eleven a presence in 47 out of the top 50 metropolitan markets.

The transaction followed months of pressure on Marathon from investors including Elliott Management Corp. and D.E. Shaw & Co., for sweeping changes to improve its performance. Elliott had pushed for Marathon to break itself up into three separate businesses: refining, retail and pipelines.

Marathon’s shares plunged as much as 4.8%, erasing gains posted after the company announced earlier on Friday a plan to buy back as much as $10 billion of stock with proceeds from the Speedway sale. The shares closed up 2.2% to $60.08.

Marathon said in a statement Friday night that it has the proceeds of the sale and “remains committed” to its plan to buy back shares.

7-Eleven and Marathon said in separate statements that they were legally allowed to close the deal after they negotiated an agreement with the FTC that allowed them to complete the transaction Friday if the agency didn’t move to stop it. Such so-called timing agreements are common in merger investigations by the government.

7-Eleven said the companies agreed to multiple extensions of the timing agreement this year. During that time, 7-Eleven negotiated a settlement with with the FTC’s staff to resolve the agency’s concerns that the Speedway deal threatened competition, the company said. The agreement called for selling 293 stores, according to 7-Eleven.

Then on May 11, Slaughter and Chopra said they wanted more time to review the divestiture settlement, 7-Eleven said. The agreement required approval of a majority of the agency’s commissioners before becoming final.

FTC’s party-line split

“7-Eleven took the request very seriously, but such a last-minute delay would have created enormous disruption to the lives of our new colleagues at Speedway and to the business,” the company said in a statement. “Given that there was no legal basis for such a delay and given that 7-Eleven was abiding by the negotiated settlement agreement, we closed today on schedule.”

A spokeswoman for the agency declined to comment on why the commissioners couldn’t reach an agreement on the proposed settlement. The agency is currently split 2-2 between Republicans and Democrats. The commission needs a majority vote to approve merger settlements or sue to block deals.

The FTC’s two Republican commissioners issued a statement agreeing that the deal violates antitrust laws and criticizing the two Democrats for allowing the acquisition to proceed.

“Rather than resolve the issues and order divestitures (or sue to block the transaction), the Acting Chairwoman and Commissioner Chopra have issued a strongly worded statement,” Commissioners Noah Phillips and Christine Wilson said. “Their words do not bind the merging parties, leaving consumers completely unprotected.”

At their own risk

US antitrust enforcers have the authority to revisit closed mergers and sue in court to unwind them. The Democrats hinted at that possibility in their statement.

“The parties have closed their transaction at their own risk,” they said. “The commission will continue to investigate to determine an appropriate path forward to address the anticompetitive harm and will also continue to work with state attorneys general.”