The consumer watchdog has suffered a defeat as the Federal Court rejected its bid to prevent Metcash taking over the Franklins chain of supermarkets.
Metcash is now poised to acquire Franklins’ 80 corporate stores and supply goods to its 10 franchised stores in the wake of the ruling in Sydney on Thursday.
The Australian Competition and Consumer Commission (ACCC) had attempted to stop the proposed $215 million takeover, arguing Metcash would have an effective monopoly on grocery wholesaling to independent supermarkets in NSW if the deal proceeded.
The commission took court action after Metcash said it would continue with the takeover of the Franklins supermarket business from Pick n Pay Stores Ltd of South Africa, despite the ACCC’s objections.
A 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, the regulator argued.
But in his initial judgment summary handed down on Thursday, Justice Arthur Emmett said he was not persuaded there was a separate market for the wholesale supply to independent supermarket retailers of packaged groceries.
He said he believed it was quite likely the takeover would in fact strengthen the capacity of independent retailers to compete with major supermarket chains.
“The commission has based its case solely on there being a separate market for the wholesale supply to independent retailers of packaged groceries,” Justice Emmett said, adding he was not persuaded this was the case.
Justice Emmett found it was highly likely that Pick n Pay would dispose of the Franklins assets by means of a store-by-store sale if the acquisition did not proceed.
There was no evidence as to the extent to which Coles, Woolworths or Metcash would be prohibited from acquiring such stores, he said.
“On the other hand, I consider that it is quite likely that the acquisition of Franklins by Metcash will strengthen the capacity of independent retailers operating under the IGA banner to compete more vigorously with the major supermarket chains,” Justice Emmett said.
He dismissed the ACCC’s case and ordered them to pay the costs of Metcash and Pick n Pay.
Metcash, which is Australia’s largest wholesale and distribution company for independent retailers, including IGA stores, welcomed the ruling in a brief statement on Thursday, saying it was now free to acquire Franklins.
The ACCC could appeal against the decision.
“The proposed acquisition is likely to result in a substantial lessening of competition through the removal of Metcash’s closest and only genuine competitor,” newly-appointed ACCC chairman Rod Sims said in a statement.
Consumer group Choice cautiously welcomed the ruling, saying it would be a good day for consumers if Metcash were to establish a viable alternative to Woolworths and Coles.
“What there really needs to be is more competition in this sector, so at the end of the day if Metcash is able to provide an alternative to the two big players that can compete on the product range, on the price, on the customer service level and convenience, then the consumers will have greater choice,” spokeswoman Ingrid Just told AAP.
Woolworths chief executive Michael Luscombe said he wasn’t disappointed by the court’s decision.
“It just changes ownership from one to the other,” Mr Luscombe told analysts in Sydney on Thursday.
Justice Emmett will hand down his complete judgment in the Federal Court on Friday.
