Woolworths will be allowed to buy control of food services company PFD after all, with the ACCC reversing an earlier preliminary ruling that the deal could lessen competition in parts of the food sector.
The decision from the ACCC emerged out of the blue on Thursday morning without any hint or leak, as often happens in situations like this.
Woolies had revealed its intention to buy control of PFD in a $302 million offer in August 2020.
The greenlight was surprising given that the ACCC had previously raised numerous concerns over the deal and was widely expected to block it.
Woolworths announced its intention to acquire 65% of PFD last August. The deal drew significant interest from the Commission and independent suppliers who were concerned the acquisition could see Woolworths increase its already substantial bargaining power with food manufacturers.
ACCC chair Rod Sims said in Thursday’s statement the decision to give the merger the OK was due to the Commission’s now belief that it was unlikely to substantially lessen competition in the food industry, though he admitted the amalgamation of the two large companies would likely change how the wholesale food distribution industry operates.
The ACCC’s investigation focused largely on potential impacts on food and grocery suppliers, who often view wholesale food distributors such as PFD as alternatives to the big supermarkets – Woolies, Coles, Metcash (IGA) and Aldi.
“We conducted extensive market inquiries across the industry, and undertook detailed analysis of supplier and competitor data, and internal documents of key interested parties. Ultimately the evidence before us did not indicate the transaction would be likely to substantially lessen competition,” Mr Sims said in the Commission’s announcement on Thursday.
PFD is a wholesale food distributor, purchasing a wide range of food products from suppliers and distributing them to businesses such as restaurants, cafes, hotels and clubs, petrol and convenience stores and institutions such as hospitals. PFD has about 15% of the wholesale food distribution segment.
“PFD primarily sells and distributes food products that are not suitable for direct retail sales [and] Woolworths only supplies business to a limited extent, distributing products suitable for direct retail sales through ‘Woolworths at Work’ and ‘Australian Grocery Wholesalers’,” the ACCC said in its statement on Thursday. “[And] while there were concerns expressed by some suppliers, many suppliers did not raise competition concerns.”
During the course of the ACCC’s investigation Woolworths put forward a number of temporary measures it could put in place as a behavioural undertaking. However, since the ACCC has decided competition won’t be lessened, Woolworths will not be held to any of the temporary measures.
In any case, the ACCC said the measures would likely have been unacceptable, given that they raised “considerable compliance risks“.
Woolworths was pleased with the outcome, stating the 65% stake in PFD will support its evolution of the wider Woolworths Group into a ‘food and everyday needs ecosystem’.
“We are pleased to have approval to invest alongside the Smith family in PFD Food Services,” Woolworths Group chief executive Brad Banducci said a separate statement.
“They are a great Australian success story and a well-respected business with both suppliers and customers in the food service industry,” Mr Banducci added.
Woolies shares rose 0.7% to $42.964 in a muted response to the news.