The share price of supermarket giant Woolworths Group Ltd [ASX:WOW] is up slightly, despite the ACCC announcing concerns regarding its proposal to buy PFD Food Services.
It has been a rollercoaster of a year for the WOW share price, with mixed trading results due to the pandemic.
At the time of writing, the WOW share price is up 0.28%, or 11 cents, to trade at $39.28 per share.
Consumer watchdog concerned
Today WOW acknowledged the ACCC’s preliminary competition concerns regarding the supermarket’s proposal to acquire 65% of PFD Food Services.
WOW announced its bid to acquire part of PDF in August in an effort to vertically expand its business.
PFD Food Services is one of Australia’s leading food service suppliers, purchasing a wide range of food products from manufacturers and distributing them to food service businesses such as restaurants and cafés, fast food franchises, hotels and clubs.
WOW is seeking to acquire all of PFD’s 26 distribution centres in order to support its logistical demand, stemming from an uptick in online ordering.
Five Aussie superstars paying top dividends and set to thrive in the post-pandemic era. Claim your free report now.
The ACCC is concerned as the proposed acquisition seems likely to increase WOW’s already substantial bargaining power in its dealings with food manufacturers.
WOW and PFD both acquire food and groceries from suppliers.
Meaning the proposed acquisition would remove PFD as an important alternative customer in the food sector.
In turn, reducing the number of buyers and increasing WOW’s relative size as a customer of food manufacturers and suppliers.
ACCC Chair Rod Sims stated:
‘If Woolworths was able to use its existing bargaining power as a retail buyer to gain better supply prices for PFD than PFD could obtain on its own, in the medium term this could have serious consequences for the structure of the wholesale food distribution sector, such as reduced range, choice, and service levels.’
The market doesn’t share ACCC’s sentiment
With the Woolworths share price rising today, despite the broader ASX 200 sinking, investors do not seem too concerned that the potential acquisition will be scrapped.
Woolworths Group CEO Brad Banducci shares a similar sentiment:
‘We remain confident that we will address any outstanding potential concerns so that we can progress the proposed partnership. We see no reduction in competition, in any relevant markets, from our proposed partnership with PFD.’
Whether or not this is the case remains to be seen.
And we won’t know the outcome of the ACCC’s decision until April.
If the deal goes ahead, we could see the dominance of the grocery duopoly of WOW and Coles Group Ltd [ASX:COL] expand further, which could be favourable for shareholders.
If the deal falls over, in my opinion, there won’t be much of a negative flow-on effect, as WOW may already have the means to expand its current logistics operations.
For The Rum Rebellion
PS: Discover five ASX-listed firms that have been beaten down during the crisis…with the potential to rally strongly as the market recovers. Click here to learn more.