On 25 August 2011 His Honour Justice Emmett delivered a judgment in favour of Interfrank Group Holdings Pty Ltd (Franklins), permitting the acquisition by Metcash Trading Limited (Metcash) of all the shares in Franklins. On 13 September 2011 the Australian Competition and Consumer Commission (ACCC) sought from the Federal Court an interim injunction restraining the proposed acquisition by Metcash of Franklins supermarket business whilst it appealed Justice Emmett’s decision but the Court dismissed that application on 20 September 2011, allowing the deal too proceed. Senior Associate, Mitch Coidan reviews the matter.
In July 2010 Metcash applied to the ACCC for informal clearance to acquire all the shares in Franklins. On 17 November 2010 the ACCC announced that it would oppose the proposed acquisition, however Metcash proceeded with the acquisition despite the ACCC’s opposition. As a result the ACCC brought proceedings in the Federal Court of Australia to prevent the acquisition by Metcash of Franklins.
On 15 March 2011 a trial commenced before Justice Emmett in the Federal Court of Australia.
On 25 August 2011 Justice Emmett delivered a judgment in favour of Franklins. In a summary of conclusions, Justice Emmett stated that he was unpersuaded by the ACCC’s analysis in relation to market definition and the impact that the proposed acquisition might have on competition. The case was therefore decided on the issues of market definition, the counterfactual (the future market structure without the acquisition) and the likely impact of the proposed acquisition of competition.
In rejecting the ACCC’s pleaded market, Justice Emmett highlighted the constraints arising from competition at the retail level between independent retailers supplied by Metcash and supermarkets operated by the major supermarket chains, noting that retail competition is “highly relevant” to market definition.
The ACCC submitted that it was only required to establish that there was a “real chance” the counterfactuals it put forward would come to pass in the event that the acquisition did not proceed. Justice Emmett, however found that even if that contention was correct, he was not persuaded there was a “real chance” of any potential offer from a third party, such as Pick’n’Pay Retailers Pty Limited being accepted.
In concluding that the proposed acquisition did not substantially lessen competition in the market in contravention of section 50 of the Competition and Consumer Act 2010, Justice Emmett went on to say that “it was 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.”
On 9 September 2011 the ACCC Chairman, Rod Sims stated that the ACCC was appealing the decision, “…because of the adverse effect of the proposed acquisition on independent supermarket retailers consumers and competition in the New South Wales and ACT grocery sector. Metcash, with this proposed acquisition, will have an ability to increase prices and/or reduce service to independent supermarket retailers. Second, the ACCC is appealing because, if left unchallenged, the court’s interpretation of some fundamental principles of merger analysis could have serious implications for the ACCC’s ability to block anticompetitive mergers and so protect consumers in the future.”
The case is an interesting test for newly appointed ACCC Chairman Rod Sims. A further update in regards to this important case will be provided following the appeal, which is due to be heard in October.