The Federal Trade Commission (FTC) recently set its sights squarely on non-compete agreements in merger transactions, making them ripe for further scrutiny. In a Consent Order issued June 14, 2022, the FTC ordered GPM Investments LLC and its parent company ARKO Corp. to roll back provisions it deemed “anticompetitive” in GPM’s May 2021 acquisition of 60 Express Stop retail fuel stations from Corrigan Oil Company. Under the FTC’s order, ARKO and GPM agreed to limit the non-compete agreement that it imposed on Corrigan, and return five retail fuel stations in several local Michigan markets. This decision comes on the heels of a June 10th statement by the FTC’s Chair Lina M. Khan, joined by Commissioners Rebecca Kelly Slaughter and Alvaro M. Bedoya, warning businesses that contract terms in merger agreements that potentially impede fair competition would be highly scrutinized.
As part of the $94 million acquisition, GPM required Corrigan to sign not only a non-compete agreement covering the 60 Express Stop locations that were acquired, but also requiring Corrigan not to compete with more than 190 pre-existing GPM locations throughout Michigan and Ohio. Most of the approximately 190 pre-existing GPM locations subject to the non-compete agreement were located in geographic areas far from the acquired Express Stop locations.
The non-reportable transaction, which fell just under the reporting threshold of the Hart-Scott-Rodino Antitrust Improvement Act (HSR Act), came under scrutiny of both the FTC and Michigan’s Office of the Attorney General, which assisted in the investigation of the case. The complaint issued by the FTC alleged that the noncompete agreement, as applied to the approximately 190 pre-existing GPM locations, was unreasonable because it bore no relation to the acquisition of the Express Stop locations and harmed customers in local retail gasoline and diesel fuel markets in Michigan and Ohio who would otherwise benefit from potential competition. “By keeping Corrigan from competing to sell gasoline and diesel to consumers in [Michigan and Ohio], the agreement not to compete harmed customers who otherwise could benefit from this competition,” said Holly Vedova, the FTC’s Director of the Bureau of Competition, in a press release announcing the action.
The Complaint also alleged that, even in the 60 markets acquired from Corrigan, the non-compete agreement was unreasonably overbroad in geographic scope and longer than reasonably necessary to protect a legitimate business interest. Additionally, the Complaint alleged that the acquisition harmed competition in the retail sale of gasoline and diesel fuel in five local Michigan markets by reducing the independent market participants to two or fewer.
The settling the FTC’s complaint against ARKO and GPM required them to:
- amend the agreement not to compete to only apply to the retail fuel businesses acquired by GPM, excluding the five locations to be returned to Corrigan;
- limit the terms of the agreement not to compete in these markets to no broader than 3 years in duration and no more than 3 miles from each Express Stop location;
- return to Corrigan, no later than June 28, 2022, the retail fuel outlets in each of the five local markets;
- obtain prior approval from the Commission before acquiring retail fuel assets within a 3-mile driving distance of any of the returned locations for 10 years;
- not enter into or enforce any agreement not to compete related to acquisitions of a retail business that restricts competition solely around a retail fuel business already owned or operated by GPM; and
- notify third parties subject to similar agreements not to compete of GPM’s obligations under the order.
The Commission voted unanimously to issue the Complaint and accept the proposed Consent Order. The FTC will now publish the Consent Order in the Federal Register and invite public comment. Once processed, comments will be posted on Regulations.gov.