ACCC chair Gina Cass-Gottlieb warns anti-competitive deals are being done behind her back
After approving a deal for Woolworths to buy a controlling stake in PETstock, ACCC chair Gina Cass-Gottlieb lashed out at the current merger system.
Australian Competition and Consumer Commission chair Gina Cass-Gottlieb has used her approval of Woolworths’ investment in leading pets business PETstock to lash out at major failings in the current informal merger regime, warning the current system could be encouraging anti-competitive deals to be done behind the regulator’s back.
In a scathing blast at the business community and companies that seek to bulk up by quietly buying out the opposition, Ms Cass-Gottlieb on Thursday launched a renewed call for reform of the nation’s merger and acquisition laws, saying the ACCC needed better laws to enable it to become aware of mergers before they occur to prevent those which could lessen competition.
She said the competition regulator was often relying on the “goodwill” of businesses to voluntarily notify the ACCC when it strikes mergers or buys out competition, and await an outcome. But that when this goodwill absent businesses can amass scale and market power through “serial and non-notified” acquisitions which may “fly under the ACCC’s radar”.
Announcing the ACCC will approve Woolworths’ deal to invest $586m to buy a controlling 55 per cent stake in leading pets business PETstock, after PETstock also agreed to divest some businesses it had bought, Ms Cass-Gottlieb issued a press release focused on Woolworths deal but which heavily focussed on the deficiencies she saw in current merger laws and the dire need for new laws to protect competition and consumers.
“Under the current informal merger regime in Australia, there is no law requiring merger parties to notify the ACCC of proposed mergers and acquisitions or to wait for clearance before they can proceed,” Ms Cass-Gottlieb said.
“The ACCC is particularly concerned that there may be anti-competitive acquisitions taking place without our knowledge under our current voluntary regime,” she said.
Her intervention into the debate around merger laws comes as the Albanese government recently announced it would review merger rules and processes to ensure they support competitive markets, economic dynamism, and better outcomes for consumers. As part of the review of the nation’s competition policy settings the government released a consultation paper on potential merger reform.
“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. Consumers ultimately bear the risk that anti-competitive mergers will complete without scrutiny and increase prices, reduce quality or reduce service levels,” Ms Cass-Gottlieb said.
The issue has risen to the top of the ACCC’s and Ms Cass-Gottlieb’s minds because of the Woolworths deal to buy a stake in PETstock which was first announced 12 months ago, but has been awaiting clearance from the competition regulator.
Shortly after the ACCC commenced its review of Woolworths’ proposed acquisition of a majority interest in PETstock, which operates the PETstock banner, 276 stores, 65 vet clinics and 162 grooming salons, it emerged PETstock had completed a large number of acquisitions in the pet industry in recent years not notified to the ACCC. These included buying up stores such as Best Friends Pets, Pet City, and Animal Tuckerbox chains and the Pet & Aquarium Warehouse store in Eltham, Victoria, which the ACCC alleges may have contravened the Competition and Consumer Act.
On Thursday the ACCC said it had accepted a court-enforceable undertaking from PETstock to divest a package of sites and assets, including 41 retail stores, following the ACCC’s enforcement investigation into past acquisitions by PETstock.
The ACCC will not oppose Woolworths’ proposed acquisition of a 55 per cent controlling interest in PETstock, and has also accepted a court-enforceable undertaking from Woolworths to support the PETstock divestiture.
However, Ms Cass-Gottleb has used the forced divestment of these stores to rebalance competition in the pets sector and the discoveries made through the ACCC investigation to criticise the behaviour of some businesses to keep acquisition deals secret and behind closed doors.
She pointed to failings in current merger laws for allowing this to happen, using the PETstock case as an example of what is wrong with the current regime.
“PETstock’s decision to make numerous acquisitions of this scale without notifying the ACCC demonstrates the limitations of Australia’s current merger regime. It relies on the goodwill of businesses to voluntarily notify the ACCC and await an outcome. Absent this goodwill, businesses may be able to amass scale through serial and non-notified acquisitions which may fly under the ACCC’s radar.
“While in this case, the ACCC eventually became aware of the past acquisitions, we cannot know how many other acquisitions have taken place without notification to the ACCC with potential anti-competitive consequences. And while we have secured a divestiture that resolves our concerns in this instance, this is a far less efficient and effective way to maintain the competitiveness of Australia’s economy.
“Seeking to restore the competition lost after the fact is not always possible, and is a poor substitute for preventing the loss of competition in the first place.”
On the Woolworths deal to buy a controlling stake in PETstock, Ms Cass-Gottlieb said the tie-up was unlikely to lessen competition.
“Market feedback indicated that specialty pet retail and grocery are distinct channels in the pet industry, and specialty pet retail stores have a very different product and service offering to supermarkets and discount department stores.”
The ACCC concluded it was unlikely Woolworths could leverage its retail position into the specialty pet industry in an anti-competitive way.
As part of its undertaking, PETstock will be required to divest 41 specialty pet retail stores, 25 co-located veterinary hospitals, four brands and two online retail stores, including Best Friends Pets and OurVet brands, including the Best Friends Pets website, plus 26 Best Friends Pets stores and 25 co-located veterinary hospitals in New South Wales, Victoria, Queensland and the Australian Capital Territory.
When Woolworths chief executive Brad Banducci revealed the supermarket’s move to buy a 55 per cent stake in PETstock last year he said the business was showing an “impressive growth trajectory” and that, while pet ownership spiked during pandemic lockdowns, there was no sign of a slowdown as consumers devoted more time and money to pets, and companion animals such as dogs and cats lived longer.
PETstock was founded by brothers Shane and David Young, and together with other existing shareholders will retain a 45 per cent equity investment in the business. The Young brothers will continue to run the business.
Start-ups rising to the green challenge, says KPMG
Start-ups here are increasingly choosing to tackle issues of climate change and green technology, KPMG Australia chief Andrew Yates says.
Firms looking to chop costs with wage cuts, lay-offs
Some 20,000 financial services and telecommunications roles have been shifted overseas as local contractors are given the flick and employers begin to cut costs.