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ACCC won’t fight Metcash takeover of Franklins

The Australian Competition and Consumer Commission has copped criticism for its decision to abandon the fight against Metcash acquiring Franklins supermarkets.

In September the case between the ACCC and the owner of Franklins, Pick n Pay, reached the Federal Court after a bid by the ACCC to have the acquisition disallowed was overruled.

The ACCC appealed the decision on the grounds that the purchase would severely damage the sector, with small retailers unable to compete with the big chains.

In the same month is was revealed that without an acquisition, the supermarket chain would most likely be unable to continue trading past 2012.

Metcash said it would be continuing with the planned takeover despite the objections, causing the ACCC to seek an injunction.

But Metcash and Pick n Pay were free to complete the $215 million Franklins deal after the Federal Court refused to grant the ACCC the injunction.

Despite saying it would again appeal the decision, the ACCC has now announced it will not be continuing the fight as it has accepted the court’s decision that there is not enough evidence to prove the ACCC’s predicted damage to competition in the sector.

“The ACCC has carefully reviewed the Full Federal Court’s decision in the Metcash matter and decided that it will not seek special leave to appeal to the High Court,” ACCC chairman Rod Sims said.

“The ACCC agrees that in relation to any acquisition, it must consider the likely effect on competition, based on commercially relevant facts, assessments and evidence and not speculative possibilities.

The ACCC said it was receptive of comments by the court relating to what is sometimes referred to as the “counterfactual” analysis, or comparison of the likely future state of competition both with and without the acquisition and such an analysis will remain one of the tools the ACCC can use in its assessment of the likely competitive effect of an acquisition, to be considered in the context of the market facts.

“Although not conclusively determined by the Full Court on this occasion, the ACCC considers that there is strong judicial support for the view that “likely” means a “real chance,” Sims said.

“The ACCC will continue to assess the likely competitive effect of an acquisition on the basis of a “real chance” test.

The ACCC was criticised from the bench during the case for relying on "economic theory" and not applying a commercial rationale to its decisions.

"Previously the ACCC had adopted a counterfactual when there was, in its view, a ‘real chance’ that the counterfactual would eventuate but for the transaction," Fiona Crosbie, a partner at law firm Allens Arthur Robinson, told The Australian.

She said the ACCC had to "compare the world with the transaction to the world without it" to determine whether a merger would substantially lessen competition in a market.

"Previously the ACCC had adopted a counterfactual when there was, in its view, a ‘real chance’ that the counterfactual would eventuate but for the transaction," Crosbie said.

"Following the full court’s decision there seems to be general acceptance that the ACCC must establish (i) the counterfactual is more likely than not to occur (balance of probabilities), and (ii) there is a real chance of a substantial lessening of competition relative to the counterfactual.

"However, members of the full court appeared to question the intellectual consistency of merger analyses involving two different standards of proof.

"And so there appears to be a question mark as to whether the ‘real chance’ standard for the second limb of the test would survive an appeal to the High Court.

"The absence of an appeal means the High Court will not be able to settle the issue on this occasion," she said.

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