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ACCC accused of playing Dr Jekyll

Sydney Morning Herald

Tuesday March 15, 2011

Elisabeth Sexton

THE competition regulator's attempt to stop Metcash buying the Franklins supermarket chain was "economic engineering", "some form of experiment farm" and "an exercise in futility", lawyers for the would-be purchaser and vendor said yesterday.The Australian Competition and Consumer Commission wants the Federal Court to sanction "the establishment of a petri dish in which some new form of competition not currently present could be induced to grow", said John Griffiths, SC, for the South African retailer trying to sell Franklins, Pick n Pay Retailers.In July Metcash, which supplies groceries to independent retailers nationwide including IGA supermarkets, announced it would buy the 80 stores operated by Franklins in NSW for $215 million.Other assets included in the deal are arrangements with 10 Franklins franchisees, the No Frills house brand, and a wholesaling operation.The deal would allow Metcash to "significantly and sustainably increase prices to independent retailers", said the ACCC's barrister, Norman O'Bryan, SC, on the first day of the case.The Metcash barrister Justin Gleeson, SC, said Justice Arthur Emmett would be given evidence that any other offers would result in "a substantial loss of value to Pick n Pay" with no benefit to competition.Mr Gleeson said the only other expressions of interest for the aggregate business were from a consortium put together by a Canberra independent retailer, Theo Koundouris, and from the small Queensland wholesaler SPAR Australia.The consortium's offer was much lower than the Metcash bid, Mr Gleeson said, and SPAR had not made a formal bid but had asked Pick n Pay to provide vendor finance and retain a 50 per cent stake until the debt had been repaid.After the ACCC opposed the Metcash deal, Pick n Pay also conducted a tender offering the Franklins stores singly or in small groups.Mr Gleeson said in this "plan B process" Metcash was the only bidder for some stores and the highest bidder for many, and bids had been received from Woolworths and Coles.The ACCC was supporting independent "white knights" in "the hope they might establish a wholesale operation to rival Metcash", Mr Gleeson said.But Mr Koundouris had bid for only six stores, a Sydney independent retailer Vasilli Karellas had bid for 10 and SPAR had bid for none, he said. Under cross-examination, a senior ACCC executive, Rami Greiss, said "that's correct" when Mr Gleeson said if there was "a substantial loss of value to Pick n Pay in [the alternate sale] process, that's just the operation of law says the commission"."The commission is saying, even though we don't know what might happen if Koundouris is rejected, whatever it is is better than Metcash, is that the case?" he asked."Yes it is," replied Mr Greiss.- Isn't this really some form of experimental farm ... where you say: we ban Metcash; we let Koundouris have a go; if that doesn't prove acceptable to Franklins, people will just think of something new?- Not at all; we accept that Pick n Pay will act rationally as a vendor ... and accept the highest bid available.In his opening address, Mr O'Bryan said it was possible for the court to find that a sale to Metcash was likely to lead to less competition.

© 2011 Sydney Morning Herald

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