The competition watchdog says it will appeal a Federal Court judgment which paved the way for grocery wholesaler Metcash to buy the Franklins supermarket business.
The Australian Competition and Consumer Commission (ACCC) says it will appeal the decision on two grounds after trying to stop the proposed $215 million takeover.
“First, because of the adverse effect of the proposed acquisition on independent supermarket retailers, consumers and competition in the NSW and ACT grocery sector,” the watchdog’s chairman, Rod Sims, said on Thursday.
And second, “if left unchallenged, the court’s interpretation of some fundamental principles of merger analysis could have serious implications for the ACCC’s ability to block anti-competitive mergers and so protect consumers in the future”.
Mr Sims said Metcash, with the proposed acquisition, would be able to increase prices and/or reduce service to independent supermarket retailers.
Following last month’s ruling, Metcash is poised to acquire Franklins’ 80 corporate stores and supply goods to its 10 franchised stores.
The ACCC argued Metcash would have an effective monopoly on grocery wholesaling to independent supermarkets in NSW if the deal went ahead.
The watchdog took court action after Metcash said it would continue with the takeover of the Franklins supermarket business from Pick `n Pay Stores of South Africa, despite the ACCC’s objections.
The ACCC argued the takeover would result in a “substantial lessening of competition”, by removing Metcash’s closest competitor for the wholesale supply of packaged groceries in NSW and the ACT.
But in his initial judgment summary, Justice Arthur Emmett said he was not persuaded there was a separate market for the wholesale supply to independent supermarket retailers of packaged groceries.
The ACCC says it believes the court made a number of significant legal and factual errors in dismissing its application to stop the proposed acquisition.
“We remain concerned that the proposed acquisition would remove any future ability for those independent retailers to choose from whom they get their grocery supplies,” Mr Sims said.
He said the ACCC had received submissions from independent retailers and others that claimed competition to Metcash at the wholesale level was necessary for them to control the cost of their goods.
The ACCC had an obligation to examine the competition effects of alternative outcomes, he said.
In a statement issued by Franklins, the chairman of Pick n Pay, Gareth Ackerman, said he was “deeply disappointed” by the ACCC’s decision to appeal.
“The federal court found the sale would strengthen the capacity of independent retailers operating under the IGA banner to compete more vigorously with the major supermarket chains,” Mr Ackerman said.
“The decision to appeal is a blow to customers”.
It would also prolong the anxiety of 4,000 staff members and a protracted appeal would most likely have a “strong negative impact” on Franklins’ weakened financial position.
He said the company would fully review the decision and evaluate its options.
