ACCC grants conditional approval to Woolworths’ acquisition of controlling stake in Petstock

The Australian Competition and Consumer Commission (ACCC) has accepted a crucial undertaking from Petstock Pty Ltd (Petstock), entailing the divestiture of a package of assets, including 41 retail stores, following an investigation into the company’s past acquisitions. This decision clears the path for Woolworths (ASX: WOW) to acquire a 55 per cent controlling interest in Petstock, with the ACCC also accepting a court-enforceable undertaking from Woolworths to facilitate this divestiture.

Investigation into Petstock’s Past Acquisitions

Petstock, Australia’s second-largest specialty pet retailer, came under ACCC scrutiny for its numerous past acquisitions in the pet industry, which were not notified to the regulatory body. ACCC Chair Gina Cass-Gottlieb explained that these acquisitions raised significant concerns about potential contraventions of the Competition and Consumer Act. The ACCC’s investigation highlighted issues with Petstock’s acquisitions of Best Friends Pets, Pet City, Animal Tuckerbox chains, and the Pet & Aquarium Warehouse store in Eltham, Victoria.

The ACCC’s Concerns and Resolution

The ACCC was particularly concerned about the removal of competition against Petstock and Petbarn through these acquisitions. After discussions with Petstock and Woolworths, court-enforceable undertakings were offered to resolve the ACCC’s concerns. Cass-Gottlieb emphasized the limitations of Australia’s voluntary merger regime, advocating for stronger laws to scrutinize mergers before they occur and prevent anti-competitive acquisitions.

Woolworths’ Proposed Acquisition of Petstock

The ACCC concluded that Woolworths’ proposed acquisition of a 55 per cent interest in Petstock is unlikely to substantially lessen competition. This decision came after thorough market consultation and review of internal documents, data, and research. The distinct channels of specialty pet retail and grocery were identified, along with the unique product and service offerings of specialty pet retail stores compared to supermarkets and discount department stores.

Financial Aspects and Market Impact

In December 2022, Woolworths announced its intention to acquire a 55% equity interest in Petstock for A$586 million, valuing 100% of Petstock at an Enterprise Value (EV) of A$1.3 billion. The ACCC’s review of this proposal and Petstock’s past acquisitions led to the decision for Petstock to divest 41 specialty pet retail stores, including 25 veterinary hospitals and two online retail stores.

This development in the pet retail market reflects the ongoing efforts of the ACCC to maintain fair competition and protect consumer interests in the evolving Australian retail landscape.