As they merge two operations into a $6 billion chemicals giant, Phillips Petroleum Co. and Chevron Corp. also will create the largest U.S. maker of smooth-wall HDPE pipe — if the pipe part of the deal passes antitrust muster. The two units — Phillips Driscopipe and the Plexco Division of Chevron — are nearly equal in size. The parent firms supply high density polyethylene resin to the pipe companies.
With $350 million in combined annual sales, the pipe operations are just a tiny part of the overall chemicals and plastics merger.
Still, some analysts, as well as Jim Gallogly, who will head the new Phillips-Chevron joint venture, think the Federal Trade Commission could take a close look at the pipe part of the merger.
"The FTC might ask for more information about the pipe business, but I don't anticipate any problems," Gallogly said in a Feb. 10 telephone interview.
"The business would have more than half of the noncorrugated HDPE pressure-pipe market, but the pipe market is much broader than just polyethylene," he said.
Smooth-wall pipe is often used for pressure-pipe applications, as opposed to corrugated HDPE pipe used for nonpressure installations, such as drain pipe. Smooth-wall markets include natural-gas transmission lines, irrigation pipe and water and sewer pipe.
HDPE competes against PVC, concrete and steel in most of its markets. "With the ease of entry in the pipe market, there are new producers every day," Gallogly said.
The combined units will hold about 50 percent of the noncorrugated PE pipe market, according to Plastics News and industry sources. The most recent PN data shows each unit generated annual sales of $175 million in 1998. Together, they consume 450 million pounds of PE resin a year — 250 million pounds for Driscopipe and 200 pounds for Plexco.
According to data from the Washington-based Society of the Plastics Industry, PE suppliers sold 1 billion pounds of resin to makers of smooth-wall pipe in 1998.
But natural-gas transmission pipe could be an area of potential FTC concern.
The two companies hold a commanding 90 percent share of the market for HDPE pressure pipe. That market grew explosively in the 1980s, as HDPE displaced cast-iron and steel, but has seen more-modest growth in the last decade. Other markets have heated up, such as conduit for carrying fiber-optic cable.
According to the Plastics Pipe Institute, a trade group in Washington, gas-transmission pipe consumed 218 million pounds of PE resin in 1998.
Plexco, based in Bensenville, Ill., runs seven pipe plants. Richardson, Texas-based Driscopipe operates six factories.
Officials at the pipe companies declined to comment.
"All I know is that we have a merger. That's been announced. I don't know anything more than that," said an official at one of the companies.
George Coleman, a plastic pipe consultant in Texarkana, Texas, thinks the merged company may end up selling the pipe operations, since pipe is such a tiny part of the big picture. If so, this is a good time to sell, according to Coleman, because PE pipe is a hot market right now.
Coleman said a sale is likely only if the merged Phillips-Chevron venture was sure it could supply resin to the new owner.
Coleman, who runs Coleman Marketing Inc., thinks any fallout from the merger will trickle slowly down to the pipe operations. Since they are so close in size, he said a shakeout is likely, with one of the firms emerging as the leader and running the business.
"It looks to me like the big are getting bigger," Coleman said. "It'll be interesting to see what takes place downstream."
Plastics News senior reporter Bill Bregar contributed to this story.