With the latest news, Metcash has moved closer to buying Woolworths’ Home Timber and Hardware (HTH), worth $250 million, in a proposed acquisition after the Australian Competition and Consumer Commission (ACCC) said that it would not oppose the bid despite Metcash’s existing ownership of Mitre 10.
Competition War: It is expected that the approval could mean greater competition for rival Bunnings though its market dominance is likely to be threatened by a margin between Mitre 10 and Home Timber and Hardware. The merger would primarily create a $2.2 billion monopoly hardware wholesaler against Bunnings, which has a presence in most local markets.
Balanced decision by ACCC: Metcash has already provided a court undertaking to the effect that it would not stop independent hardware stores in the network from purchasing from stores not already owned by Metcash. ACCC also pointed that there were concerns about the acquisition by Metcash of the only rival full-service wholesaler, but the commission decided to accept the undertaking providing independent retailers with the power to bypass Metcash and to facilitate entry by new wholesalers. He added that the decision was finely balanced and one to which deep consideration had been given.
Some causes of concern: Observers say that the Mitre 10 and Home Timber and Hardware brands are likely to survive the proposed merger of the two retailers and experts suggest that Metcash is likely to operate the two networks side-by-side and even encouraged the operations to compete with each other. The competition commission felt that the undertakings enforceable in court regarding the treatment of franchisees as well as the power of Bunnings itself will prevent abuse of market power. Bunnings is said to be an alternative for consumers and may act as a check on the market power of Metcash and its ability to weaken competition.
At the same time, there are concerns that the merger could run into problems because there is some degree of distrust between HTH and Mitre 10 who have been fighting each other fiercely in the marketplace. It also worries suppliers to the hardware sector though they believe that the merger would have little impact on Bunnings.
Factors against Metcash: Woolworths is believed to be considering a number of alternative bids for its hardware business with Anchorage Capital Partners reported to have made an offer for Home Timber & Hardware and the private equity giant Blackstone Group reported to have bid for both HTH and Masters businesses for sale.
There are chances that Woolworths may rather sell both the assets to a single buyer and leave it to the new owners to consider any further sale though the company is not commenting on the sale process. Earlier, the opening bid from Metcash had failed to convince the regulatory watchdog that it was a better deal for consumers and sent it back to the negotiating table.
Final decision on the bids is said to be done before the end of July. Meanwhile, MTS stock price is down 3.8% on July 22, 2016.
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