The Woolworths Group Ltd (ASX: WOW) share price is up after a positive ACCC update about the Petstock acquisition.
Woolworths has been trying to buy a 55% stake of Petstock, the second largest specialty pet retailer and it offers a broad range of pet products and services in-store and online.
ACCC won’t oppose the acquisition
The Australian Competition & Consumer Commission (ACCC) has accepted a court-enforceable agreement from Petstock to divest/split-off a package of sites, including 41 retail stores, following the ACCC’s investigation into past Petstock acquisitions which had not been approved.
Those acquisitions included Best Friends Pets, Pet City and Animal Tuckerbox chains, as well as the Pet & Aquarium Warehouse in Eltham, Victoria.
With Woolworths and Petstock agreeing to divest all of the businesses (Best Friends Pets, My Pet Warehouse, Pet City and so on) that Petstock shouldn’t have, the ACCC said it will not oppose Woolworths’ proposed acquisition.
The ACCC said it was unlikely to substantially lessen competition, with pet retail and grocery being “distinct channels” in the pet industry, being a “very different product and service offering to supermarkets and discount department stores”.
The ACCC also suggested it was “unlikely that Woolworths could leverage its retail position into the pet industry in an anti-competitive way.”
New laws needed?
The ACCC pointed out it needs better laws to enable it to become aware of and properly scrutinise mergers before they occur and to prevent those likely to substantially lessen competition.
The regulator said it can’t know how many other acquisitions have taken place without notification to the ACCC, with potential anti-competitive consequences. It called it a “far less efficient and effective way to maintain the competitiveness of Australia’s economy.”
Seeking to restore the competition lost is “not always possible and a poor substitute for preventing the loss of competition in the first place.”
Final thoughts on this deal and Woolworths shares
It is curious that Woolworths wants to buy Petstock so much considering it’s losing a substantial portion of the pet business it’s buying, and there will be more competition after the divestments.
The ACCC doesn’t seem to think Woolworths can leverage its retail position into the pet industry in an anti-competitive way. Does that mean Woolworths’ acquisition is not as attractive as it first appeared? Not necessarily.
Population growth should mean the Woolworths share price and profit can keep rising over time. It could be a solid long-term performer, though there are other ASX dividend shares I’d rather invest in.
