Metcash pursues Franklins bid despite ACCC

"Because of the nature of the application to the ACCC, Metcash is just exercising its right. There was no absolute prohibition.

"The ACCC cannot block again, they can however take us to court - which, if it happens, I'm confident it will be resolved speedily," chairman Gareth Ackerman told I-Net Bridge on Tuesday, 23 November 2010.

Sydney-based Metcash said in a statement that it notified the ACCC that in not fewer than five business days it intends to take further steps to proceed with the proposed transaction.

While it is not clear what action Metcash will take, the company stated that it would try to get the purchase approved.

Blocked

The ACCC started a review of the proposed sale after Pick n Pay announced on July 1 that it had decided to sell Franklins to Metcash.

However, the retailer's R1.5 billion sale of Franklins was blocked by the ACCC last Wednesday.

The commission said that such a deal would mean a significant lessening of competition through the removal of Metcash's closest competitor in the New South Wales (NSW) groceries sector.

Pick n Pay said it was "surprised and disappointed" by the decision.

"We fail to see how the ACCC could view the proposed sale to Metcash Trading as lessening competition ... on the contrary we believe the sale is in the best interests of Australian consumers," it said.

Pick n Pay and Metcash on Tuesday also said they had agreed to extend the cut-off date in their agreement in relation to the sale to 30 June 2011.

Keen to get out from down under

The company is keen on an Australian exit strategy to be accomplished through the sale, as it focuses on growth in Africa and invests in new warehouses to centralise its distribution operations.

"The board has made a definite decision that we 100% want to exit Australia.

"We would have been out by September this year, but we're now looking at June 2011," Ackerman said.

Pick n Pay might have to sell Franklins in piecemeal fashion, bit by bit, if the Metcash transaction does not materialise, which would require negotiations with a number of potential buyers.

"It's not the ideal situation, it would take more time and we'd make less money," added Ackerman.

The Cape Town based company bought Franklins in 2001 for R139 million when Sean Summers was chief executive, but failed to make its business profitable as it came up against tough opponents.

"As well-run as the business was, it was not profit making. Competition in Australia is really beefed up with the likes of Coles and Woolworths.

The smaller retailers just get squeezed in the middle," Ackerman told I-Net Bridge.

No 'credible' bids received

The commission last week said there were other parties that would not raise the same competition concerns as Metcash, which had "expressed strong interest in acquiring the entire Franklins business."

Pick n Pay, however, said it had not received any "credible" bids for the entity as a whole.

Ackerman said that he was very surprised by the ACCC placing any weight in its decision on unnamed parties, who had apparently expressed strong interest to the ACCC in acquiring the Franklins business.

"There has definitely been interest from a couple of people, but no viable bids," he said.

Metcash is Australia's largest wholesale and distribution company servicing independent grocery retailers throughout Australia.

Metcash's customers are predominantly independently-owned grocery and liquor stores.

It specialises in grocery, fresh produce, liquor, hardware and other fast moving consumer goods.

Franklins operates 80 corporate-owned and eight franchised supermarkets in New South Wales.