Competition watchdog puts Woolies in the doghouse over Petstock acquisition

The Australian Competition and Consumer Commission (ACCC) has encountered "significant competition concerns" in its review of Woolworths Group's (ASX: WOW) proposed $586 million acquisition of a majority stake in the owner of Petstock.

The competition watchdog's concerns relate to acquisitions made by Petstock prior to its deal with Woolworths, with the country's second-largest pet retailer proposing to placate the regulator through the divestiture of Best Friends Pets, Pet City, Animal Tuckerbox and Pet and Aquarium Warehouse in Eltham, Victoria.

"During the current Woolworths, Petstock merger review, market participants expressed concerns about the already significant consolidation that had occurred within specialty pet retail in recent years,” says ACCC Commissioner Stephen Ridgeway.

The regulator claims that Petstock completed numerous acquisitions between 2017 and 2022 that were not reported to the ACCC, prompting an enforcement investigation earlier this year.

Under the Competition and Consumer Act, the ACCC can seek court-ordered divestiture of shares or assets acquired in breach of the merger law for a period of three years after completion of a transaction, and can also seek penalties orders for a period of six years.

At this stage of its enforcement investigation, the ACCC has particularly significant concerns that four of Petstock’s past acquisitions may have contravened section 50 of the Competition and Consumer Act.

"Our investigation so far has identified significant concerns with these four transactions in particular because of their impact on national and state-wide chain-on-chain competition, as well as competition in multiple local areas," says Ridgeway.

"While there is currently no mandatory requirement for merger parties to notify the ACCC, the decision taken here to proceed with acquisitions of this scale without seeking ACCC clearance demonstrates the limitations of the current informal merger regime in Australia."

Petstock and Woolworths have now each offered to provide court-enforceable undertakings to resolve the ACCC’s concerns so they can proceed with the supermarket group's proposed 55 per cent investment in the pet retailer.

The target proposes divesting 41 specialty pet retail stores, 25 co-located veterinary hospitals, four brands and two online retail stores.