ACCC gives nod to Woolworths pets deal with asset sales in tow

The Australian Competition and Consumer Commission said on Thursday that it will not oppose Woolworths’ acquisition and has accepted a court-enforceable undertaking from Woolworths to support PETstock’s divestitures.

ACCC chairwoman Gina Cass-Gottlieb said that while the asset sales resolve the regulator’s concerns in this transaction, dealing with competition issues in a historical way is not efficient or effective in keeping competition intact.

“The ACCC needs better laws to enable it to become aware of and properly scrutinise mergers before they occur, and to prevent those likely to substantially lessen competition,” she said.

“Consumers ultimately bear the risk that anti-competitive mergers will complete without scrutiny and increase prices, reduce quality or reduce service levels.”

Strong returns forecast

Woolworths’ investment in PETstock will be overseen by a combined board including the founding Young family, led by new chairman Colin Storrie. Mr Storrie just stepped down from Endeavour Group’s board, the liquor retailer in which Woolworths has a minority stake.

PETstock continued to grow over the past year with underlying sales increasing by 10 per cent to $892 million in the 12 months to October and underlying EBITDA relatively stable at $125 million, Woolworths said. The acquisition is tipped to close early in January.

“As we said at the time of the original announcement, this investment will enable Woolworths Group to meet more of our customers’ pet needs and is expected to deliver strong returns for shareholders,” Woolworths boss Brad Banducci said.

PETstock is the second-biggest player in the sector behind TPG Capital’s Greencross.

PETstock will sell 41 specialty pet retail stores, 25 co-located veterinary hospitals, four brands and two online retail stores to address the ACCC’s concerns.

Ms Cass-Gottlieb said the regulator had significant concerns that PETstock’s acquisitions of the Best Friends Pets, Pet City, and Animal Tuckerbox chains and the Pet & Aquarium Warehouse store in Eltham, Victoria may have contravened the Competition and Consumer Act.

She added PETstock’s decision to make numerous acquisitions of this scale without notifying the ACCC demonstrates the limitations of Australia’s current merger regime.

“The ACCC is particularly concerned that there may be anti-competitive acquisitions taking place without our knowledge under our current voluntary regime,” Ms Cass-Gottlieb said.

The next big deal that will fall to the ACCC to scrutinise will be the merger of drug wholesaler Sigma Healthcare by discount chain Chemist Warehouse which, if consummated, will create an $8.8 billion listed giant.