Metcash-Franklins Merger Inquiry 2010
Senate Economics Committee Inquiry into the Australian Competition and Consumer Commission (ACCC) Franklins decision
This inquiry was initiated by Nationals Senator Ron Boswell and supported by independent Senators Nick Xenophon and Steve Fielding. It followed the ACCC's opposition to a proposed acquisition by Metcash of 88 Franklins stores (see ACCC merger register and press release). This was an unprecedented referral of an informal decision of an independent regulator and, it is suggested, created a dangerous precedent.
It was all the more inappropriate given that Metcash subsequently announced they intended to proceed with the merger, which inevitably resulted in federal court proceedings initiated by the ACCC.
Nevertheless, the issue was referred to the Senate Economics Committee on 23 November (see Senate Hansard, 23/11/2010 at p 37) and submissions were invited. Submissions were due by 29 November 2010 with a report date of 17 December (extended until 28 February 2011).
In its final report, the Committee recognised that the matter would be dealt with by the courts and that 'this is an appropriate manner in which to test the arguments and resolve the matter'.
On 23 November 2010 the Senate referred to this committee for investigation the decision of the Australian Competition and Consumer Commission (ACCC) to oppose the proposed acquisition of the Franklins supermarket business by Metcash Trading Limited, with particular reference to:
(a) the basis of the ACCC decision to oppose the proposed purchase;
(b) the competition impacts of the decision at the retail and wholesale levels;
(c) whether the Franklins’ distribution warehouses, supplying eight franchised stores, could be regarded as an independently sustainable wholesale business; and
(d) any other related matters."
Forthcoming - report due 28 February
[para 3.1] Under Australia's informal merger clearance regime, if the ACCC decides to oppose a proposed acquisition and the merger parties subsequently decide to proceed, the ACCC would need to take legal action through the courts to stop the acquisition
[para 3.3] However, on 23 November 2010 Metcash announced that it had informed the ACCC of its intention to proceed with the proposed acquisition
[para 3.4] On 8 December 2010, the ACCC instituted proceedings in the Federal Court of Australia ...
[para 3.5] As the ACCC's decision in this matter was made under the informal merger clearance process, the Federal Court will not review the ACCC's decision but will instead be required to form its own view on the proposed acquisition (the court may take into account the findings the ACCC reached during its review). Choice submitted that 'although the ACCC has come to a decision in the general sense, there is no decision in the technical legal sense of being determinative of an issue of fact falling for consideration'. Unlike the ACCC's informal decision, however, the decision of the Federal Court, subject to any rights of appeal, will be binding on Metcash [footnote omitted]
[para 3.6] The limited information which is publicly available about the ACCC's analysis in this matter, and therefore the limited ability for interested parties to provide detailed comments to this inquiry, was also noted by submitters. ...
[para 3.9] Notwithstanding the significance of any competition issues associated with the proposed acquisition, the committee recognises this matter will be examined in detail through the judicial process. The committee believes this is an appropriate manner in which to test the arguments and resolve the matter.
Several submissions were made, including:
- Mr Joe Harrison (credentials unclear) (claiming the ACCC have no 'understanding of the industry nor any idea of how commerce actually works)
- NARGA (criticising the ACCC's decision and claiming that 'the proposed acquisition of the Franklins business by Metash would bring strong and sustainable benefits to independent retailers and consumers in New South Wales.')
- Dr Brett Williams (senior lecturer) submitting that the Senate should not proceed with the inquiry because it 'would be making a decision which a law of the Australian parliament has delegated to other authorities. Williams also sets out the options open to Metcash (such as clearance, authorisation etc))
- Law Council of Australia (no submission on the merits of the ACCC decision by questioned whether it was appropriate to review the merits of an 'ACCC decision that is likely to be the subject of imminent Federal Court proceedings'. The LCA submits any inquiry should be deferred until the conclusion of any such proceedings. The LCA also notes that the decision was part of an informal merger review process and that there are additional statutory processes open to Metcash or legal avenues to challenge the decision. The LCA also notes that the informal process is largely confidential and that the Senate, to review the decision, would need to obtain this information which could raise a range of issues for parties concerned; if the review continues, the LCA submits that the Senate should 'put in place appropriate measures for the protection of evidence provided to the ACCC on a confidential basis'.
- CHOICE (expresses concern at the involvement of the Senate Committee in reviewing the transaction and 'submits that the Senate should discontinue the Inquiry'. It sets out a number of (legitimate) concerns about this inquiry. CHOICE also notes the various other avenues of review available to merger parties unhappy with an informal decision of the ACCC. On the substance of the inquiry, CHOICE expressed the view that the proposed acquisition would be likely to contravene s 50, but notes that it is not equipped to make a full assessment of the matters raised by the terms of reference. It reiterates that the 'ACCC is the proper body to undertake the complex analysis required ... [and that] ... CHOICE is not aware of any consideration that cause the Committee to doubt the ACCC's capacity to make that assessment'.
- Master Grocers Australia (expressing concern that if Metcash loses the opportunity to make the purchase and there is no other viable purchaser available then the 88 Franklins supermarkets will become vulnerable targets for the chains)
A confidential submission was also made.