On 21 July 2016, the Australian Competition and Consumer Commission (ACCC) announced that it will not oppose a bid from Metcash to acquire hardware wholesaler Home Timber and Hardware Group (HTHG). The ACCC was initially concerned by Metcash’s bid but remains reassured after considering and accepting Metcash’s court enforceable undertaking.
Unfair Competition in the Hardware Industry
In May this year, Metcash’s proposal to acquire Woolworths’ HTHG rang alarm bells with the ACCC. The ACCC’s concern was that the transaction would breach section 50 of the Competition and Consumer Act (Cth) (CCA), whereby the acquisition would “substantially lessen competition” in Australia’s hardware and home improvement industry.
The effect of the acquisition meant the Metcash would have a stake in over 100 retail stores in which it sells its wholesale products. The primary concern was that the acquisition would lock independent retailers into buying hardware from one wholesaler, Metcash.
An undertaking is when the undertaking party promises the court that it will take and refrain from taking certain actions. If is a court enforceable undertaking as the effect of it is the same as a court order. While the ACCC was reviewing the deal, Metcash submitted a draft undertaking (which is 23 pages long) in an attempt to negate any anti-competition concerns held by the ACCC.
In receiving the undertaking, the ACCC extended its initial review period to consider adequately the undertaking and to receive feedback from stakeholders and interested parties.
Some interesting points from the undertaking are summarised below:
- The undertaking will last for at least ten years, starting from 21 July 2016, unless the ACCC revokes the undertaking or Metcash requests to withdraw the undertaking and the ACCC consents to the withdrawal.
- Metcash undertakes to treat the retailers it does have and does not have a stake in, equally.
- Retailers that Metcash would have an interest in, as well as all other retailers, are not required to purchase through Metcash or a warehouse maintained by Metcash
- Metcash will provide details or notice of the undertaking to relevant retailers, stakeholders and its staff in plain English.
Outcome of Written Undertaking
Section 87B of the CCA provides the ACCC with a statutory power to accept a written undertaking. The ACCC was satisfied that the undertaking addressed the ACCC’s concerns and consequently accepted the undertaking. In making its decision, the ACCC noted the following:
- The undertaking will prevent Metcash from barring out the wholesale alternatives. As stated above, it does this by promising to lift, now redundant, provisions that restricted its wholesale hardware customers from buying goods anywhere but from Metcash.
- The undertaking includes “non-discriminatory” provisions. As mentioned above, these rules will prohibit Metcash from favouring retailers that Metcash has a stake in, from the retailers they don’t have an interest in.
- There are other ways for manufacturers and importers to distribute their products, in addition to Metcash.
What if Metcash Breaches the Undertaking?
If Metcash violates any provisions in the undertaking, the ACCC has an avenue to apply to the Federal Court of Australia to make individual orders. These orders can be any order the Court sees fit, and can be any, or all, of the following:
- Compel Metcash to comply with a provision in the undertaking.
- Direct Metcash to remunerate any loss of damage that came about from their breach.
- Direct Metcash to pay the Commonwealth the amount of the financial benefit.
Woolworths Hasn’t Even Accepted Metcash’s Bid
Woolworths has received bids from other hopefuls who wish to purchase HTHG. It is yet to accept any. With the ACCC’s approval of the above undertaking, Metcash is one step closer to acquiring HTHG.
Metcash’s Court Enforceable Undertaking: Key Takeaways
In summary, Metcash sought informal clearance to acquire HTHG from Woolworths. Both Metcash and HTHG have wholesale and retail operations in the hardware and home improvement industry, and the ACCC was concerned that this acquisition would reduce the number of businesses in wholesale and impact the supply and demand of wholesale products. Contact LegalVision’s lawyers to assist you with any questions you may have. Call us on 1300 544 755.