The competition regulator the ACCC has delivered another blow against the over concentration of competition in Australian business.
It has ruled out the proposed purchase of the 88 Franklins’ NSW stores by Metcash.
The decision has dealt a blow to Metcash’s expansion plans and leaves Franklins South African owners, Pick n’ Pay in an invidious position of not wanting to remain in Australia after a foray that has not worked over the past decade.
The ACCC said in a statement that the deal would result in a significant lessening of competition through the removal of Metcash’s closest competitor in the New South Wales groceries sector.
In September the ACCC warned in its issues report that the deal was likely to result in less competition for the supply of packaged groceries to independent retailers in NSW, putting Metcash’s $215 million takeover in doubt.
Currently, the ACCC has expressed similar concerns about parts of the proposed purchase of Sigma’s drugs business by Aspen Pharmacare of South Africa.
In the last year the Commission has blocked the NAB bid for AXA Asia Pacific Holdings, the Caltex Australia purchase of Mobil’s local service stations, the planned purchase of the Newreg registeries business by Link Market Services, the BHP/Rio Tinto iron ore Joint Venture and Cargill’s purchase of Goodman Fielder’s edible fats and oils business.
And these are not all the decisions opposing takeovers in the past two years by the Commission where it has claimed that a significant loss of competition would result.
Metcash chief executive Andrew Reitzer has previously argued that the proposed takeover of Franklins would enhance the competitive landscape in Australia and provide a much-needed counterweight to the market power of Woolworths and Coles.
Mr Samuel said the transaction would reduce the number of wholesalers in the market from two to one and create further barriers to entry for any new competitor.
Metcash is Australia’s largest wholesale and distribution company to independent retailers, including IGA stores.
Franklin also offers a full range of wholesaling services, terms, rebates and prices to 88 independently-owned and operated grocery stores.
"Because of high fixed costs, potential entrants need a large number of supermarkets as customers to give them the scale to operate a wholesale network profitably," Mr Samuel said in the ACCC statement.
"The proposed acquisition would have resulted in the removal of a large pool of 88 supermarkets, including many medium and large supermarkets, which would otherwise be contestable, either partly or wholly, by a new wholesale competitor."
The ACCC said while large supermarket chains posed competition at a retail level, this was only an indirect constraint on Metcash at the wholesale level.
The ACCC said it was mindful that other parties, whose bids would not raise the same competition concerns as Metcash, had expressed strong interest in the ailing Franklins business.
"It should be clearly understood that today’s decision by the ACCC does not in any way mean that the big supermarket chains can come in and acquire their choice of Franklins stores," Mr Samuels said.
He said the ACCC would examine all bids for Franklins to ensure competition concerns do not arise.
In a statement last night Metcash said it was disappointed by the decision.
“Chief Executive Officer of Metcash, Mr Andrew Reitzer said "Metcash is
committed to championing independent grocery retailers.
“This transaction would have resulted in the most competitive outcome for consumers.
“The NSW market share of IGA retailers would have increased from 11% to 18% leading to greater supply chain efficiencies and more competitive selling prices."
"Metcash is concerned that the ACCC’s decision will lead to the national
chains acquiring a significant number of the Franklins stores.
“Despite the ACCC’s proposed scrutiny of each acquisition, past experience has shown that the national chains will be able to acquire a number of the Franklins stores.
“This will simply entrench their dominant position by lifting their market share in NSW to the highest level of any state in Australia", he added.
And that point is the biggest negative from the ACCC decision.
