The long awaited decision of the Federal Court in the Australian Competition and Consumer Commission’s (ACCC) application to prevent the acquisition by Metcash Trading limited (Metcash) of all of the shares in Interfrank Group Holdings Pty Limited (Franklins) (proposed acquisition) was today handed down by Justice Emmett. The ACCC failed in its quest to show that the proposed acquisition would likely result in a substantial lessening of competition under section 50 of the Competition and Consumer Act 2010 (CCA). The ACCC was ordered to pay the costs of Metcash and Pick n Pay.

In a summary of conclusions, Emmett J stated that the ACCC’s pleaded case as to the relevant market definition was not made out, nor was the court persuaded that it “is more likely than not” that a third party would offer to acquire the whole, or a significant majority of the Franklins assets, thereby rejecting the ACCC’s counterfactual1.

As is often the case, the relevant market was the subject of debate, with the ACCC having contended that the proposed acquisition should be considered in the market for “the wholesale supply of packaged groceries to independent supermarkets”. In rejecting the ACCC’s pleaded market, Emmett J 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.

In consideration of the counterfactual, the ACCC contended it was only required to establish that there was a “real chance” that the counterfactuals it put forward would come to pass in the event that the acquisition did not proceed. However, the court found that even if that contention was correct, it was not persuaded that there was a “real chance” of any potential binding offer from a third party. Moreover, His Honour recognised that even if an offer were made to Pick n Pay Retailers (Pty) Limited (Pick n Pay), there is no guarantee that such offer would be accepted.

In concluding that the proposed acquisition would not contravene section 50 of the CCA, Emmett J went so far to say that he considers “it 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”.

The Federal Court will hand down reasons for its judgment tomorrow.