Woolworths proposed acquisition of Karabar to be blocked by ACCC

Posted by Daniel Palmer on 25th June 2008

The Australian Competition and Consumer Commission (ACCC) announced today that it will oppose the proposed acquisition of the Karabar Supabarn supermarket by Woolworths Limited.

Woolworths proposed the takeover of the Queanbeyan Karabar Supabarn supermarket on April 7 and the ACCC has since been researching the potential impact on competition.

With Woolworths operating a large supermarket in central Queanbeyan, the ACCC was concerned about the effect a takeover would have on competition in the area. “The ACCC concluded that the acquisition by Woolworths would be likely to substantially lessen competition in the local retail supermarket market surrounding the store,” ACCC Chairman, Mr Graeme Samuel, reported.

The store is now likely to be bought by an independent operator, according to Mr Samuel. “The ACCC had strong evidence to suggest that in the absence of the acquisition by Woolworths, the supermarket would instead be acquired by an independent operator, Supabarn, which has intentions to expand the supermarket to operate as a full-line supermarket in strong competition with Woolworths and other supermarket operators,” he said. “The ACCC found that Supabarn supermarkets offer a different proposition to existing operators in the local market and considered that this would lead to increased consumer choice, as well as competition between supermarket operators on a number of factors including price, range, service, and product quality and freshness.”

“The ACCC also noted that if the acquisition had proceeded, Woolworths would have owned three of the four full-line supermarkets in the Queanbeyan area, or three out of five if the smaller Aldi supermarket is also included.”

Mr Samuel indicated last week that he was concerned by “creeping acquisitions”, whereby large corporations purchase small competitors leading a steady increase of market share. The issue with this is that the ACCC is powerless to stop each takeover, as a takeover of a very minor competitor is, in many cases, unlikely to breach competition law. As a company makes a series of small purchases, however, the competition could decline considerably.

“The Trade Practices Act, on our best legal advice, does not permit us to stop parties that are engaging in acquisitions of assets by small increments,” he advised last week. “The law only prohibits an acquisition that is likely to lead to a substantial lessening of competition. Those creeping acquisitions – be it in supermarkets or other industries – can lead ultimately to significant dominance and potential monopolisation.”

The ACCC are able to block the purchase of the Karabar Supabarn supermarket by Woolworths, however, as, despite the minor nature of the purchase, they believe that because Woolworths have a strong presence in the area a substantial lessening of competition could result.

A Public Competition Assessment will be available in due course on the ACCC’s website.