Woolworths has been cleared by the ACCC to buy small hardware retailer and distributor, Danks Holdings to use as the basis for its move into the sector in partnership with US hardware giant, Lowes.
The Commission revealed its decision in a statement late yesterday.
Acquiring Danks won’t “substantially lessen competition” after the venture agreed to special arrangements on how it deals with independent stores, the Commission said in the statement.
“The ACCC was concerned that the joint venture could discriminate against some of its wholesale customers, namely hardware retailers supplied by Danks, who would also be its retail competitors,” the ACCC said.
“The ACCC has accepted court enforceable undertakings from the joint venture in order to address these concerns.”
The venture, two-thirds owned by Sydney-based Woolworths and the rest by Lowes, agreed in August to pay $88 million for Danks, which was the country’s second-largest hardware distributor.
"With these undertakings in place the ACCC considers the proposed acquisition unlikely to result in a substantial lessening of competition," ACCC chairman Graeme Samuel said today.
"The undertakings importantly impose requirements that will lower barriers that independent hardware stores supplied by Danks otherwise faced in switching to alternative suppliers,” he said.
Additionally, the joint venture has accepted obligations that alleviate concerns that Danks stores in close proximity to joint venture big box stores would be treated less favourably than other Danks stores.
The undertaking will be available on the ACCC’s website and the ACCC will shortly issue a Public Competition Assessment explaining the reasons for its decision.
The clearance means Woolies and Lowes will now be able to start their joint venture to attack the $24 billion a year hardware market now dominated by the Bunnings subsidiary of Wesfarmers.
Woolies and Lowes have received acceptances for more than 90% of shares in Melbourne-based Danks and will now compulsorily acquire the rest, Woolworths said in a separate statement.
The venture plans to open as many as 150 large-format stores, similar in size to Bunnings’ Warehouses so-called Big Boxes. 12 sites have been found and bought, 15 more are on the joint venture’s list.
The Danks purchase gives Woolworths and Lowe’s supply agreements with 583 Home Timber & Hardware outlets and another 939 independent outlets.
In the past Woolies tried to grow into independent grocery distribution and wholesaling in competition with Metcash, but withdrew after it was too capital intensive and with low margins.
Distributing to smaller competitors with the ACCC over their shoulder (many of the independents are members of the Mitre 10 chain) might end up too expensive and time-consuming for the joint venture.
In the early years though the independents will give the joint venture buying clout with suppliers here and offshore.
Bunnings has revealed plans to expand its Big Boxes and several other tweaks to its formats before the joint venture gets scale.
Bunnings has 80 large format and 57 smaller format stores and 23 trade centres across Australia and New Zealand.
Woolies shares fell 29 cents or 1% to $28.14, and Wesfarmers shares rose 56 cents or 2% to $27.99.
