The Woolworths Group Ltd (ASX: WOW) share price is down as investors learned of ACCC attention on the pet market.
Woolworths is best known as a supermarket giant, but it recently acquired a majority stake in the business that owns PETstock, the second-largest pet store retailer.
PETstock divestment?
It was announced today that the ACCC is seeking views on a proposed divestiture by PETstock in relation to its acquisitions of Best Friends Pets, Pet City, Animal Tuckerbox and Pet and Aquariam Warehouse.
The ACCC thinks those acquisitions raise “significant competition concerns”, but they only came to light during its current review of the proposed acquisition by Woolworths of a 55% interest in PETstock.
Those “numerous” acquisitions were completed between 2017 to 2022, which were not notified to the ACCC.
The competition regulator noted that “the fact that the transactions have taken place does not preclude the ACCC from investigating and, if necessary, taking legal action.” The ACCC can seek court-ordered sales of shares or assets if the acquisitions are in breach of the merger law for a period of three years after completion of a transaction, and can also seek penalties orders for a period of six years.
The investigation into PETstock remains “ongoing”. Woolworths and PETstock have proposed some divestments to resolve the ACCC’s concerns.
Proposal
Petstock is proposing to divest 41 specialty pet retail stores, 25 co-located veterinary hospitals, four brands and two online retail stores.
That includes 25 Best Friends Pets stores and 25 co-located veterinary hospitals and the Best Friends Pets and OurVet brands, the My Pet Warehouse brand including three stores, the Pet City brand and 10 stores, the Animal Tuckerbox store located in the Launceston CBD and the Pet & Aquarium Warehouse store in Eltham, Victoria.
The ACCC is seeking submissions on the proposed divestments by 1 November 2023.
Final thoughts on the Woolworths share price
I can see why the ACCC is paying close attention to this, with a lot of market share being taken up by PETstock, and the power Woolworths would have through its holding.
The Woolworths share price has been drifting lower, but inflation is reducing, so sales growth may slow from here. Costs could remain elevated due to inflation.
It could be a solid defensive choice in terms of profit, even if there’s a downturn of economic conditions. But, there are other ASX dividend shares I’d rather invest in which I think could achieve more growth over time.
