Suddenly, within the space of two weeks, the key competition regulator, the ACCC, has redefined the limits of Australian merger and acquisition activity.
Simply put, there is now an absolute limit for M&A.
Anything that reduces competition to two to three competitors looks like it will be outlawed, especially where at least one operator will have a very dominant position.
The first was the Commission denying the approval of the move by Caltex Australia to buy Mobil Australia’s 300 or so service stations, including 53 sites where there were very serious competition issues.
Caltex says it’s still talking to the Commission, but has started on a $170 million cost cutting program and will look at reinstating dividends to shareholders after suspending them to preserve cash for the Mobil deal.
Yesterday a second major decision, with the Commission saying it will oppose the proposed acquisition of Breville Group Ltd by GUD Holdings.
GUD has bid one of its shares for four of Breville and had built up a stake of just over 48%, including 27.50% accepted into a facility held by GUD’s advisers.
This is a so-called acceptance facility. GUD had 19.4% in its own right and outright acceptances of a further 1.2%.
The ACC decision saw Breville shares plunge more than 27%, or 79 cents to $1.57. GUD shares eased 9 cents to $8.30.
GUD shares had fallen more than 7% on Tuesday, something which should be looked at by regulators.
The market sees the deal as dead and in a statement GUD said it was "reviewing" the Commission’s announcement and would comment further later on.
The decision revolves around the strong positions GUD and Breville hold in the small electrical appliance markets in Australia.
GUD supplies the Sunbeam and Emjoi ranges of small electrical appliance products in Australia, while Breville Group supplies the Breville, Kambrook, Ronson and Philips ranges of products.
"The ACCC’s investigation found that the proposed acquisition of Breville Group by GUD Holdings would likely lead to a substantial lessening of competition in relation to the wholesale supply of a number of categories of small electrical appliances," ACCC chairman Graeme Samuel in a statement yesterday.
The ACC focused on the small appliances market, instead of the wider market. GUD and Breville have a combined 30% share of the wider market. Together they have 90% of the small (or mini) appliance markets: blenders, coffee machines, food processors, hair curlers etc.
In forming this view, the ACCC said it made inquiries of a large number of stakeholders, many of whom raised concerns regarding the proposed acquisition.
Those who voiced complaints included retailers who saw the two groups as counterweights for each other.
"GUD Holdings and Breville Group are by far the two largest players in small appliances overall.
"Between them they account for the majority of sales of many product categories and for some products they have a dominant sales share in excess of 90 per cent," the ACCC said.
"Market inquiries indicated that they are each other’s closest competitors, and impose the strongest constraint on each other in relation to the wholesale supply of small electrical appliance products.
"If GUD Holdings was to acquire Breville Group there would be a reduction in this competitive tension that could result in higher prices for consumers as well as a reduction in the head to head competition between these two companies on product range, promotions and innovation," he said.
"The ACCC considers that consumers place significant value on brands, and that this acts as a barrier to entry and expansion by competitors, including the large retailers’ house brands.
"The ACCC found that Breville and Sunbeam have the strongest and most recognised brands in the industry, and it was unlikely that existing suppliers of small electrical appliances would have the ability and incentive to replace the competition lost as a result of the proposed acquisition."
Breville had opposed the offer, while Premier Media Group, the single largest shareholder in Breville (with around 30%) had noted the GUD offer, but that was all.
The offer expires on December 30. GUD could go to court, but will find it tough.
GUD paid 72 cents a share for its Breville stake of 19.4%. It is sitting on a profit, but saw far bigger gains from rationalisation and merging the operations of the two groups, which further underlined the ACCC’s concerns.
Now it’s up to Premier Investments which now controls a company in Breville that seems to have reached the natural limit of its main area of business. just like Caltex Australia.
