Grocery wholesaler Metcash has finally cleared the legal hurdles to its acquisition of Franklins, as it upgrades its financial forecast for its current fiscal year.
Seventeen months after announcing the $215 million purchase of the Franklins chain, the Federal Court on Wednesday dismissed the competition watchdog’s appeal against the deal.
The Australian Competition and Consumer Commission (ACCC) had considered the acquisition would lessen competition, but three Federal Court judges found the primary judge was correct in dismissing the original case, which began in March this year.
Metcash was given permission to continue with its takeover during the appeal, and Wednesday’s decision provides clarity as it seeks to sell 80 Franklins stores in NSW.
“We will continue the process of seeking and reviewing expressions of interest for the stores, which are being sold to independent retailers,” chief executive Andrew Reitzer said after the judgement.
Metcash shares rose on the news, adding six cents, or 1.51 per cent, to $4.03.
The wholesaler on Wednesday earlier reported a 14 per cent drop in its first half profit to $94.4 million, due to costs associated with the Franklins acquisition and the impact of price deflation.
“We continue to face a value consumer,” Mr Reitzer told journalists.
“The value consumer wants to buy everything on promotion, and if it’s not on promotion, they wait till it comes on promotion.”
Metcash wholesale sales in the six months to September 30 rose by 2.2 per cent from the previous corresponding period, but deflation prevented that from translating into profit growth, he said.
Metcash’s liquor and Mitre 10 hardware businesses provided much stronger results, with their first half earnings increasing by 32 per cent and 28 per cent respectively.
The liquor business trades under banners such as Cellarbrations, The Bottle-O and Thirsty Camel.
Mr Reitzer said growth in beer and spirits sales in those stores was against the market trend.
Mitre 10 benefited from new stores, and an improved sales performance, he said.
Metcash improved its forecast for the full year, which ends in March, increasing its underlying earnings per share target from low single digit growth to between low and mid single digit growth.
Changes to the business mean that the bulk of its earnings now come in the second half of the fiscal year, Mr Reitzer said.
