ACCC opposes the proposed acquisition of Kmart by Woolworths Limited

The Australian Competition and Consumer Commission would oppose any attempt by Woolworths Limited to acquire Kmart and Officeworks from Coles Group Limited, ACCC Chairman, Mr Graeme Samuel, said today.

"The ACCC concluded that the acquisition of Officeworks in its own right would not be likely to substantially lessen competition. Woolworths does not presently operate a similar business to Officeworks, so there is limited competitive overlap. However Woolworths' proposal is not for an acquisition of Officeworks in its own right, but for an acquisition of both Kmart and Officeworks. Given the ACCC's decision to oppose the proposed acquisition of Kmart, it also opposes the combined acquisition of Kmart and Officeworks."

Woolworths requested that the ACCC assess its proposed acquisition of Officeworks and either Kmart or Target. The ACCC has separately assessed both proposed acquisitions (Officeworks and Kmart; or Officeworks and Target), to determine whether either would be likely to lead to a substantial lessening of competition.

Kmart and Target (both owned by Coles) and Big W (owned by Woolworths) are national discount department store chains retailing general merchandise.; Officeworks is a retailer of office and technology products for home users, students and businesses.

"The ACCC's investigation found that the proposed acquisition by Woolworths of Kmart, Big W's closest competitor in a number of important respects, would be likely to substantially lessen competition in a number of markets."

"The ACCC is particularly concerned about the effect of the proposed acquisition of Kmart in markets for the retail of basic footwear, men's basic apparel, women's basic apparel, children's basic apparel, toys, books and DVDs," Mr Samuel said.

"The ACCC took into consideration information provided by Woolworths, Coles Group Limited and many other market participants, including customers, suppliers, competitors and landlords.

"Market inquiries indicated that, on a national basis, Big W and Kmart are each other's closest competitors, and impose the strongest constraint on each other in a range of markets. In contrast, Target and specialty retailers are generally positioned differently from Big W and Kmart in terms of price, store format, range, service levels and national footprint. The ACCC also considers that barriers to entry on a larger scale are very significant. In particular, it is extremely difficult to obtain access to a large network of suitable store sites. Existing retailers are also likely to lack the ability or the incentive to reposition themselves closer to Big W post-acquisition.

"If Woolworths were to acquire Kmart, there would be a reduction in competitive tension in the relevant markets, which is likely to result in higher retail prices for consumers," Mr Samuel said.

"The ACCC has extended its timeline to allow further consideration of the proposed acquisition of Target by Woolworths. The ACCC has received a large amount of information, including a further submission from Woolworths on 10 October 2007, and as a result it intends to make further inquiries in order to determine whether the proposed Target acquisition would result in a substantial lessening of competition. The ACCC still intends to announce its decision in respect of the proposed Target acquisition prior to the Coles shareholder vote on the proposal for Wesfarmers to acquire the Coles Group (the shareholder vote will take place on 7 November 2007).

"During this period, the ACCC intends to further consider any conglomerate effects of the proposed acquisition, and the question of whether the post-acquisition structure of a Coles Group consisting of supermarkets, liquor, petrol and Kmart, facing a Woolworths consisting of supermarkets, liquor, petrol, Target, Big W, Dick Smith, Tandy and Officeworks may constitute a lessening of competition relative to the likely counterfactual, namely a Wesfarmers consisting of the above Coles Group companies plus Bunnings, Officeworks and Target facing Woolworths in its current form.

"The ACCC will also consider the effect of the proposed acquisition in markets for retail space, in light of information from landlords and the further submission from Woolworths received by the ACCC on 10 October 2007," Mr Samuel said.

The ACCC notes that there is currently no sale agreement between Coles and Woolworths. On 2 July 2007, the Coles board announced it would put a recommended offer to Coles shareholders for Wesfarmers Limited to acquire 100 per cent of Coles under a scheme of arrangement. The ACCC announced on 22 August 2007 that it would not oppose Wesfarmers' proposal. On 7 November 2007, Coles shareholders are due to vote on the proposal for Wesfarmers to acquire the entire Coles Group.

A Public Competition Assessment will be available soon on the ACCC's website from the link below.

Background

Section 50

Section 50 of the Trade Practices Act 1974 prohibits mergers and acquisitions that will have the effect, or are likely to have the effect, of substantially lessening competition in a market.  Section 50(3) sets out a non-exclusive list of matters that must be taken into account in determining whether an acquisition is likely to substantially lessen competition.

The ACCC conducted an informal merger assessment process in relation to the proposed acquisition in accordance with its published guidelines.  The ACCC's Merger review process guidelines are available on the ACCC website.