On 30 November, the Full Federal Court dismissed an appeal by the Australian Competition & Consumer Commission (ACCC) in relation to its application to prevent the acquisition by Metcash Trading Limited (Metcash) of shares in Interfrank Group Holdings Pty Ltd (Franklins) from Pick N Pay Retailers (Pty) Limited (Pick N Pay).
Implications
Background
The ACCC’s position was that the effect or likely effect of the share acquisition would be to substantially lessen competition in a ‘market’ and would therefore contravene section 50(1) of the Competition & Consumer Act 2010 (Cth).
The ACCC asserted that the relevant ‘market’ in which competition would be substantially lessened was the market for the wholesale supply of packaged groceries to independent retailers.
The key issues before the court were:
to consider the future state of the ‘market’ with and without the acquisition by Metcash – this is the so called ‘counterfactual’ test; and
to correctly identify what is the relevant ‘market’ as to do so determines the reference point by which it can be determined whether competition in a market would be substantially lessened.
‘Counterfactual’ test
The role of the ‘counterfactual’ test is to predict what the changed market conditions will be without the merger taking place. This prediction will then form the benchmark when considering whether the contested merger will be likely to substantially lessen competition.
The ACCC’s position was that it was likely, in a sense of a ‘real chance’, that, without an acquisition by Metcash, a particular consortium of buyers, KKKL Consortium, would be the alternate acquirer of Franklins’ assets or at least a substantial majority of those assets. The ACCC’s position was that, following this potential acquisition, the KKKL Consortium would be able to then establish a wholesaling operation of independent retailers, in competition with Metcash.
If this ‘counterfactual’ position could not be established, then the ACCC could not be successful in its appeal as, without any such acquisition by KKKL Consortium, the field of grocery wholesaling would be left to Metcash as Pick N Pay was winding down its Australian operations.
The Court found that the alternative or ‘counterfactual’ scenario put forward by the ACCC was a matter of ‘pure speculation’. It followed that there could not be a ‘real chance’ that a binding offer would be made by the KKKL Consortium. In rejecting the ACCC’s position, Justice David Yates found that what was required was a ‘real world’ assessment based on matters that were commercially relevant and meaningful. Mere possibilities, let alone speculative possibilities, were insufficient.
As such, the ACCC’s ‘counterfactual’ position was rejected by the Court and its appeal was dismissed.
The relevant ‘market’
In any event, the Court went on to consider whether there was a separate market for the wholesale supply of packaged groceries to independent retailers, as put forward by the ACCC.
The Court found that the relevant market was broader and included the major supermarket chains, particularly Coles and Woolworths, who ought to have been included in the relevant ‘market’ as their existence imposed a significant downstream competitive constraint on Metcash.
Given that the Court found the relevant ‘market’ was broader than the ACCC’s proposed narrower definition, even if the ACCC had succeeded on its ‘counterfactual’ position, the proposed merger would not have lessened competition in this wider market given the presence of Coles and Woolworths in this broader market.