On August 25 2011 Justice Emmett of the Federal Court of Australia delivered a judgment in favour of Interfrank Group Holdings Pty Ltd (Franklins), allowing Metcash Trading Limited to acquire all shares in Franklins. On September 13 2011 the Australian Competition and Consumer Commission (ACCC) sought from the court an interim injunction to restrain the proposed acquisition while it appealed Emmett's decision. However, the court dismissed the application on September 20 2011, thereby allowing the deal to proceed. The ACCC's appeal was due to be heard in October.
In July 2010 Metcash applied to the ACCC for informal clearance to acquire all shares in Franklins. On November 17 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.
On March 15 2011 a trial commenced before the Federal Court of Australia. On August 25 2011 Emmett delivered a judgment in favour of Franklins. In a summary of conclusions, 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 on competition.
In rejecting the ACCC's pleaded market, 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 required only to establish that there was a "real chance" that the counterfactual it put forward would come to pass if the acquisition did not proceed. However, Emmett found that even if that contention were correct, he was not persuaded that there was a real chance of any potential offer from a third party (eg, Pick'n'Pay Retailers Pty Ltd) 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, 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 September 9 2011 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 the newly appointed ACCC chairman.
For further information on this topic please contact Mitch Coidan at Piper Alderman by telephone (+61 2 9253 9999), fax (+61 2 9253 9900) or email ([email protected]).