It wasn’t the Christmas present Woolworths or BP were expecting. Instead of a bauble, they got coal from the competition regulator, the ACCC which has decided to oppose the big petrol station sale and purchase between the two claiming the deal would lessen competition in the petrol market.
The ACCC announced before trading started yesterday on the ASX that it intends to oppose the proposed acquisition by BP Australia of Woolworths network of retail service station sites.
Caltex (which currently suppliers the Woolies sites) jumped 3.7% to $34.77. Woolies shares were off just on 0.6% at $26.88.
Woolworths currently operates 531 sites and has 12 sites in development. BP supplies fuel to approximately 1,400 BP-branded service stations throughout Australia, setting fuel prices at roughly 350 of them.
“We consider that BP acquiring Woolworths’ service stations will be likely to substantially lessen competition in the retail supply of fuel,” ACCC Chairman Rod Sims said a statement yesterday (https://www.accc.gov.au/media-release/accc-to-oppose-bps-acquisition-of-woolworths-service-stations).
“Woolworths is a vigorous and effective competitor which has an important influence on fuel prices and price cycles in many markets throughout the country. Many consumers seeking out cheaper petrol will head to Woolworths petrol stations.”
“BP prices are significantly higher on average than Woolworths prices in the major capital cities (see charts below). BP generally increases prices faster than Woolworths during price increase phases, and is slower to discount during the price discounting phase of cycles,” Mr Sims said.
“We believe that fuel prices will likely increase at the Woolworths sites if BP acquires them and other retailers would then face less competitive pressure. The bottom line is that we consider motorists will end up paying more, regardless of where they buy fuel, if this acquisition goes ahead.”
“Fuel is a major expense for many households, and even a small increase in prices due to reduced competition will have a major impact on drivers,” Mr Sims said.
“This acquisition will likely affect metropolitan price cycles by making the price jumps quicker, larger and more coordinated. Reduced competition will also mean that prices will not fall as far, or as quickly, in the discounting phase of the cycle,” Mr Sims said.
The ACCC said in yesterday’s statement that it conducted extensive data analysis of all major retailers’ fuel prices to determine the effect that BP and Woolworths have in both local and metropolitan-wide areas.
The ACCC considered whether the competition concerns in metropolitan and local areas could be addressed by divesting sites.
“This has been the most significant merger investigation and decision the ACCC has considered in 2017. The ACCC has determined that the underlying concerns arising from the proposed acquisition would not be addressed by the divestments proposed by BP,” Mr Sims said.
The ACCC took into account a large number of submissions from a broad range of market participants including motoring groups, competitors, and both corporate and individual consumers.
It particularly pointed to Brisbane were it said BP’s prices were 1.1 cents a litre above the Brisbane average price, while Woolies was 1.6 cents a litre below. In Sydney Woolies was just under the market average, but BP was 3 cents a litre above.
