The information below contains some questions and answers about the Australian Competition and Consumer Commission's review of the proposed acquisition of Home Timber and Hardware Group (HTHG) by Metcash.
The ACCC has decided it will not oppose a bid from Metcash to acquire hardware wholesaler Home Timber & Hardware Group (HTHG) from Woolworths, after accepting a court enforceable undertaking from Metcash.
Metcash owns the Mitre 10 and True Value Hardware brands. It wholesales hardware, building materials and home-improvement supplies to hardware retailers across Australia. The retailers sell these products to do-it-yourself (DIY) and trade/construction customers. Metcash also owns or has an ownership interest in some retail hardware stores.
HTHG was formerly known as Danks. Like Metcash-Mitre 10, it wholesales hardware and owns some retail stores. HTHG owns the Home Timber & Hardware and Thrifty-Link brands. Woolworths and Lowe’s Companies bought it in 2009 as part of their joint entry into the hardware sector. They now wish to sell HTHG and their larger format Masters chain.
Woolworths has sought bids for these businesses. Metcash requested the ACCC’s view of its bid for HTHG (which does not include a bid for Masters). As of the date of this ACCC decision, Woolworths had not announced the identity of any other bidders.
Metcash has undertaken, broadly, that it will:
- not restrict hardware stores it supplies from also acquiring products from non-Metcash sources
- not favour its own hardware stores over nearby independently owned stores
- provide a plain English summary of its obligations to all hardware stores that it supplies. This will ensure that these stores are aware of Metcash’s obligations and can approach the ACCC if they consider that Metcash is not abiding by its obligations.
This was a difficult decision for the ACCC. We had concerns about Metcash acquiring its only rival full-service wholesaler. In our market inquiries, we got a lot of feedback from hardware store retailers in particular, largely supporting the bid but with some voicing concerns as well.
The ACCC was concerned about the possibility of Metcash raising wholesale prices or decreasing services to hardware stores, noting that:
- for a significant proportion of independent stores, the proposed acquisition would combine the only two hardware wholesalers that offered a broad range of goods and services. The proposed acquisition would eliminate competition between the two wholesalers, reducing the choices available to retail stores.
- metcash could make it harder for other wholesale suppliers to enter the market or expand in it, by imposing terms on retail stores that restricted their ability to obtain supply from sources other than Metcash.
- without another hardware wholesaler for retail stores to switch to, Metcash could discriminate against independent stores who compete with stores in which Metcash has an ownership interest.
With the undertaking, which was strengthened following consultation, the ACCC considered that on balance the proposed acquisition would be unlikely to substantially lessen competition. The ACCC noted that:
- the undertaking will prevent Metcash from locking out wholesale alternatives for retailers which means new wholesalers could seek to enter or expand in future. It does this by preserving retailers’ abilities to bypass Metcash as a wholesaler and get supply from buying groups or direct from manufacturers and importers
- the non-discrimination provisions in the undertaking provide that Metcash will not favour the retailers in which they have an interest over nearby independent retailers
- there are alternative ways for manufacturers and importers to distribute their products in addition to Metcash (for example, via buying groups or directly to retailers).
Bunnings was not a party to the proposed acquisition before the ACCC. However, the ACCC took into account that Bunnings is a large and powerful hardware retailer, with stores in many parts of Australia.
The ACCC considered that Bunnings would indirectly constrain Metcash’s wholesale operations. For example, if Metcash charged retail stores more for their products, they might pass that on to consumers. Those consumers could then switch to buying products from Bunnings instead. Therefore, Metcash would risk losing wholesale sales.
Under the Competition and Consumer Act 2010, parties can offer undertakings to the ACCC in relation to matters under the Act. This includes section 50, which prohibits mergers or acquisitions which are likely to substantially lessen competition. In this context, Metcash offered the undertaking to address competition concerns the ACCC identified with its proposed acquisition of HTHG.
It is up to the parties to decide what they will propose in an undertaking. The ACCC will not accept an undertaking if it is not satisfied that it will address the ACCC’s competition concerns.
The undertaking provides for an independent auditor who is accountable to the ACCC. The undertaking also requires that Metcash give to retail stores a plain-English summary of Metcash’s obligations. Retail stores (or anyone else) can contact the ACCC if they have concerns about Metcash’s compliance with the undertaking.
If Metcash does not comply with the undertaking, the ACCC can apply to the Federal Court for any or all of the following orders:
- compel Metcash to comply
- direct Metcash to pay compensation to those suffering loss or damage from the breach
- direct Metcash to pay to the Commonwealth the amount of the financial benefit attributable to breaching the undertaking
- any other order the Court thinks is appropriate.
During its merger review, the ACCC contacted over 1000 industry participants to gain their views and gather information. These included competitors to Mitre 10 and HTHG, retail stores, manufacturers, importers, industry bodies and other interested parties. We also sought comments through our website. Anyone was welcome to put forward their views. We received more than 150 written submissions and had a large number of discussions over the phone.
The ACCC received many submissions that a combined Metcash-HTHG would have greater bargaining power with suppliers and be a stronger competitor to Bunnings.
It also received concerns about, for example:
- the loss of the only alternative wholesaler to Metcash
- the possible loss of the HTHG brands or particular HTHG trading terms
- Metcash owning or part-owning more stores, through acquiring the stores HTHG owned, and the effects if Metcash discriminated against other stores in favour of its retail stores
- the removal of a major distributor for manufacturers and importers.
Section 50 of the Competition and Consumer Act 2010 prohibits acquisitions that are likely to have the effect of substantially lessening competition in a market.
Some mergers or acquisitions can help firms compete better. However, some others may reduce the level of competition in a market, allowing firms to, for example, increase prices. In this way, consumers can be worse off.
Metcash sought ‘informal clearance’ from the ACCC to acquire HTHG. That is, it sought the ACCC’s view on whether the proposed acquisition would be likely to have the effect of substantially lessening competition. Metcash offered the undertaking to address concerns the ACCC had expressed about the effect of the proposed acquisition on competition in hardware and home improvement markets.
The ACCC is not conducting a merger review for any other bidder of HTHG. Bidders do not always seek clearance from the ACCC and are not required to. For example, a bidder may consider they are not at risk of breaching section 50 of the Competition and Consumer Act 2010 because they do not already have interests in the same markets as the business they wish to buy.
The ACCC will issue a Public Competition Assessment further outlining the reasons for its decision. Information is available on the public register.