$1.78 Billion Proposed Acquisition – Woolworths and BP
Competition watchdog, ACCC once again doubles down on potentially anti-competitive deals
On the 10th July, the Australian Competition and Consumer Commission (ACCC) announced that it will postpone its decision to approve or deny BP-Woolworths acquisition to August after parties requested more time for their submissions. The original decision date was intended to be the 13th July.
On 15th March 2017, the ACCC commenced a review under the Merger Review Guidelines in regards to the proposal for the merger between Woolworths and BP. The main issue was whether the merger was anti-competitive and detrimental to the fuel industry. The review was guided by a provision under the Competition and Consumer Act 2010. In layman terms, the legislation prohibits acquisitions that would substantially lessen competition in any market.
The $1.78 billion acquisition proposal involves BP buying 527 fuel sites from Woolworths, which increases their fuel site size to 1927. This calculates to a rise of BP’s market share from 18% to 30%.To give some perspective in terms of BP’s competitors, Caltex has 1900 sites, and relatively smaller companies such as Shell and Coles Express have 980 and 692 respectively. Therefore, this merger would place BP as the market leader.
In return, Woolworths would open up its metro stores in 200 BP stations, selling ready-to-eat and take-home meals and furthermore, Woolworths would continue its 4c/litre discount loyalty program through BP service stations. As for the $1.78 billion, Woolworths plans to use it for its own supermarket-chain refurbishments
This merger is deemed to have a negative impact on the petrol industry for two reasons. Firstly, the merger exhibits an anti-competitive aspect. Having so much control in terms of fuel supply stations could dramatically impact the market share of competitors and lead to a reduction of healthy competition. Secondly, the deal could have an adverse effect on consumers due to the potential of raised petrol prices.
Thus, to obtain clearance from the ACCC, BP may need to divest 90 of its current fuel supply stations. Andy Holmes, the President of BP Australasia, however, has rejected these claims of raising prices to meet the return on investment, maintaining that BP prices will always be middle-ranged.
Many analysts like Credit Suisse are sceptical that an approval would be granted, especially given how similar proposals before were cut down for the same reasons. In 2009, Caltex had a $300 million acquisition proposal for Mobil’s 302 fuel sites that was denied by the ACCC for reasons of anti-competition. The current BP proposal in question is almost 6 times the size.
Holmes, however, denied the comparison, saying that the deals are fundamentally different. He states that in the current deal, they only intend to increase their site ownership from 5% to 12%, whereas with Caltex, their stakes were undeniably higher. He further mentions that this is ‘not about buying the sites, it is about entering into a partnership with Woolworths.’
Consequences of Non-Approval
Should the deal not be approved, Woolworths’ shares would come under pressure from rival Wesfarmer, which Woolworths has managed to outperform in previous years. This is attributed to an optimistic market where the common opinion is that the deal is will go through.
What are your thoughts on BP-Woolworth proposal? Is it founded? Should it go through? Let us know by tagging us @lawpath or #lawpath.
Tony is a legal Intern at Lawpath who is working with the contents team to provide legal insight for SMEs. With an interest in contract and business law he is currently completing his Finance and Law degree at the University of New South Wales.