ACCC scuppers Metcash plan to take over Franklins

ACCC opposes Metcash plan to take over Franklins supermarkets over concerns it will lead to monopoly rule

November 18, 2010

The competition watchdog has scuppered Metcash’s plan to take over Franklins supermarkets, fearing a takeover will lead to a monopoly.

The Australian Competition and Consumer Commission (ACCC) released its decision on Metcash’s buyout proposal, saying it will reduce competition by taking out Metcash’s closest rival in the wholesale grocery supply market.

Metcash is Australia’s largest wholesaling and distribution company servicing independent grocery retailers, while Franklins operates 80 corporate-owned and eight franchised supermarkets in NSW.

It is currently owned by Pick n Pay Retailers, which is South Africa’s largest retailer.

"Our thorough review found that the proposed acquisition would have reduced the number of players competing to provide these services from two to one, effectively giving Metcash a monopoly on grocery wholesaling to independent supermarkets in NSW," ACCC Chairman Graeme Samuel says.

"Barriers to entry in this market are already high, making timely new entry of a competitor to Metcash unlikely if this transaction proceeds."

During the ACCC’s review of Metcash’s proposal, Samuel says it spoke to retailers, suppliers, industry groups and consumers.

The ACCC says Franklins’ offers competition with Metcash in wholesaling services, terms, rebates and prices which the advantage independent retailers.

"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," Samuel says.

The ACCC says other parties have expressed interest in buying the Franklins business, noting that the bids might not raise the competition concerns that Metcash’s did.

If Pick n Pay decides to pursue an alternative sale process, the ACCC says it will examine any other bids to ensure competition does not suffer.

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