Grocery retail giant Woolworths (ASX:WOW)
has secured regulatory approval from the the Australian Competition and Consumer Commission (ACCC) to acquire a 65 per cent stake in foods distributor and producer PFD.
The competition regulator has given the nod to Woolworths’ $550 million purchase, despite market objections due to fears of hindering competitiveness in the food production and supplies industry.
PFD generates over $2 billion annually in revenue and operates over 750 company-owned vehicles to transport food products across the Australia.
Woolworths emphasised the significance of the deal, “This investment is a logical adjacency for Woolworths Group and further supports the evolution of the group into a food and everyday needs ecosystem.”
Woolworths’ announcement of interest last year in the heavyweight food services provider resulted in a strong response from industry players such as independent food suppliers and competing distributors.
Many have alerted the ACCC to the possibility that Woolworths’ inflated bargaining power could threaten the health of competition in the food production business. Some competitors expected the deal to be embargoed, expressing concerns their companies could not muster enough financial strength to challenge such a formidable consortium.
The ACCC then conducted an investigation into the risks the deal would pose to competition in the grocery market, and assessed its potential impact on food manufacturers who partner up with alternative distributors like PFD.
Its findings indicate that the deal would not incur a “substantial lessening of competition”, despite admitting that the amalgamation of two companies would significantly enhance Woolworths’ bargaining position and expand PFD’s network of outlets.
ACCC Chairman Rod Sims said, “Despite these potential changes, we concluded that there are several competitors in the wholesale segment with similar market share to PFD and non-price aspects of competition, such as range, quality and service levels are likely to remain an important part of the competitive dynamics”.
The competition watchdog highlighted that competition was not a dominant concern for the surveyed suppliers, as PFD’s distribution services only account for 2 per cent of overall demand from food suppliers.
The ACCC noted that many food manufacturers do not rely on the two companies as their main channels to market. Many have access to other outlets such as “supply to manufacturing, direct supply or negotiation with institutional and restaurant chain customers, and exports.”
The competition authority does not recognise that Woolworths and PFD’s collaboration will affect customer bases of independent suppliers to a substantial degree.
Woolworths has welcomed the news with great enthusiasm, particularly on the back of damning findings from the Gilbert report. The $54 billion supermarket operator is expected to finalise the transaction by the end of the financial year.
Shares in Woolworths (ASX:WOW)
are trading 0.4 per cent higher at $42.80