Woolworths is seeking approval from the ACCC for its acquisition of a stake in PFD Food Services

Woolworths’ bid to enter the $12bn food services industry via an equity stake in one of its largest players is dragging through the halls of the competition regulator.

PFD is one of the food services sector’s largest players.

Woolworths’ bid to enter the $12bn food services industry via an equity stake in one of its largest players, PFD Food Services, is dragging through the halls of the competition regulator as the sector raises competition concerns.

The Australian Competition and Consumer Commission said on Tuesday it was seeking views on a proposed undertaking offered by Woolworths and PFD to alleviate industry concerns and have the deal waved through.

The proposed deal has been in train for some time. Woolworths revealed a deal to buy 65 per cent of PFD for $552m last August, buying the stake from rich-list owners the Smith family. PFD is one of the nation’s largest food service providers, distributing fresh seafood, meat, frozen products, dry goods, paper products and cleaning solutions.

The ACCC issued a statement of issues outlining preliminary competition concerns with the proposed deal, and in response Woolworths offered a draft undertaking designed to maintain a degree of separation and independence between Woolworths and PFD for three years after the acquisition.

ACCC chair Rod Sims Picture: John Feder

The ACCC said the duration could be shorter in certain circumstances.

“The release of an undertaking for public consultation should not be viewed as a sign that we will ultimately accept it, or any other form of undertaking,” ACCC chair Rod Sims said on Tuesday.

The ACCC said Woolworths and PFD had indicated that the temporary measures in the draft undertaking were designed to preserve the current market dynamics and enable market participants, such as independent suppliers, to continue to do business with Woolworths and PFD independently.

“We are seeking feedback from market participants about whether the proposed behavioural undertaking is likely to address competition concerns raised by Woolworths’ acquisition of PFD,” Mr Sims said.

The proposed undertaking would place obligations on PFD’s board and governance structure and impose confidentiality protocols regarding certain supplier information. These obligations are intended to last three years, unless certain early termination clauses are triggered. These early termination clauses are generally dependent on PFD’s CEO.

PFD would also be required to implement a charter in dealing with suppliers. that charter would reflect certain principles of the Food and Grocery Code of Conduct and would be in place for five years.

Any changes to the charter would need to be approved by the ACCC and PFD would be required to provide suppliers with advanced notice of any changes, the regulator said.

A spokesman for Woolworths said the retailer provided the draft undertaking to the ACCC in mid-March.

“Critical to the success of our proposed partnership with PFD is maintaining long-term, collaborative and sustainable supplier and customer relationships.

“The undertaking provides further assurance to our previous public commitments to keeping supplier and customer information confidential. We continue to submit to the ACCC that the proposed partnership will give rise to no substantive competition concerns irrespective of the undertaking we have offered,” he said.

Other smaller and independent businesses within the food services industry are concerned about the conflict of interests and competition issues if Woolworths is allowed to control PFD given its role as the nation’s biggest food retailer.

A number of industry organisations including the Australian Convenience and Petroleum Marketers Association, the Small Business Organisations Australia and the Master Grocers Association are urging the ACCC to oppose the acquisition.