The Australian Competition and Consumer Commission has reached an in-principle agreement with Dairy Farm for the sale of the 287 supermarkets in the Franklins chain, the ACCC Commissioner for Mergers and Acquisitions, Mr Ross Jones, said today.
The package to which the ACCC has agreed involves the sale of 200 stores to independent retailers, and a maximum of 67 stores being sold to Woolworths. Independents will be offered around two-thirds of the total sales value of the Franklins stores.
The package facilitates the entry of two new players into the Eastern Australian supermarket industry. Foodland Associated Limited, an established supermarket operator in Western Australia and New Zealand, will acquire 35 supermarkets in Queensland and Northern New South Wales. Further, 51 to 60 stores in NSW will be sold to a large overseas supermarket operator capitalised at more than A$1.3 billion.
There will be a further 112 stores sold through the Joint Independent Divestiture Alliance between Franklins and Metcash. The JIDA will assist in the sale of Franklins stores to independent retailers in NSW, Victoria, Queensland and South Australia.
The ACCC's approval of this deal is conditional on the parties to the acquisition providing the ACCC with legally enforceable undertakings that ensure that the stores that are designated to independents in the package are ultimately transferred to them.
Woolworths will only be able to use the 'No Frills' product brand name and the 'Franklins' trade names for a transitional period.
"The arrangement provides a major boost to the market share of independent grocery retailers in Australia and provides a strong third force in the supermarket industry sufficient to counter concerns expressed over the strength of the major chains", Mr Jones said.
In reaching this in-principle agreement the ACCC accepted that the Franklins business is in rapid decline, and that the withdrawal of key stakeholder support was imminent. The ACCC was concerned that an uncontrolled collapse of the chain would see many more stores go to the major supermarket chains, with fewer stores available for independents and new entrants than is the case under the current proposal.
ACCC approval is conditional on receiving acceptable legally enforceable undertakings for the divestiture of a number of Woolworths stores to address local competition concerns.
The ACCC considered a number of other proposals put forward by Dairy Farm. In January 2001 Dairy Farm and Woolworths put forward a confidential proposal under which Woolworths would acquire 133 stores. The ACCC expressed competition concerns in relation to this package, and the parties subsequently withdrew the proposal.
The current package sees the number of supermarkets to be offered to Woolworths scaled back considerably from previous proposals. The number of stores offered to Woolworths has been halved from the proposal put forward by the parties in January.