Bloomberg News

Metcash’s Franklins Buy Can Proceed Despite Regulator Appeal

September 20, 2011

(Updates with comment from ACCC in third paragraph.)

Sept. 20 (Bloomberg) -- Metcash Ltd., Australia’s biggest grocery wholesaler, can complete its acquisition of the Franklins supermarket chain from Pick n Pay Stores Ltd. over the objections of the country’s antitrust regulator.

Federal Court Justice Peter Jacobson in Sydney refused today the Australian Competition & Consumer Commission’s request to block the sale until it gets a ruling from an appeals court, clearing the way for Metcash and Pick n Pay to complete the A$215 million ($219 million) deal by a Sept. 30 deadline.

Federal Court Justice Arthur Emmett rejected on Aug. 25 the regulator’s argument that the purchase would give Sydney-based Metcash a monopoly in supplying independent grocery stores and allowed the sale to proceed. The ACCC, which has argued Emmett’s ruling makes it more difficult to block mergers and acquisitions in the future, said today it would still pursue its appeal.

“The sale agreement provides Pick n Pay with the ability to make a certain exit from the business,” Jacobson said in his ruling today. “I do not see why it should be further delayed.”

Metcash gained 1.5 percent to A$4.14 as of 2:49 p.m. in Sydney trading. The stock was the best performer today on the eight-company S&P/ASX 200 Consumer Staple Index, which rose 0.9 percent.

Emmett said last month the ACCC must prove that its view of what a market would look like with and without a proposed acquisition must be more probable than any competing argument. The regulator had failed to prove, in the Metcash case, it would be more likely than not that an alternative buyer would be found for Franklins, he said at the time.

‘No Alternative’

“It’s the ordinary civil standard,” Sharon Henrick, a partner at Mallesons Stephen Jaques, said in a phone interview today. “No alternative has emerged and you’d think if one was there, now would be the time.”

She said she expected ACCC to lose its appeal because Emmett employed the correct standard.

The ACCC had argued that it only had to establish there was “a real chance” another buyer could be found.

Emmett also said Woolworths Ltd. and Wesfarmers Ltd.’s Coles stores provide enough competition and the acquisition by Metcash might provide a boost to stores operated under the IGA banner.

“Some weight should be given to the primary judge’s finding that the transaction is pro-competitive,” Jacobson wrote.

Appeal Hearing

Jacobson agreed to speed up the appeal process and scheduled a three-day hearing before a full court from Oct. 24.

“A speedy resolution will be in the best interests of all the parties,” the regulator said in a statement today.

Pick n Pay, South Africa’s second-biggest food retailer, said last week it will sell Franklins even if a deal were blocked. In its annual report released in May, Pick n Pay said sales at Franklins fell 3.9 percent in the year ended Feb. 28 to A$827 million, resulting in a net loss of A$18.1 million.

The South African company agreed to sell Franklins to Metcash in July 2010. The agreement was extended to Sept. 30 as the companies awaited the initial court ruling.

Franklins has 80 stores and 10 franchise outlets in Australia.

The case is: Australian Competition & Consumer Commission v. Metcash Trading Ltd. NSD1714/2010. Federal Court of Australia (Sydney).

--Editors: Suresh Seshadri, Dave McCombs

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net


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