The ACCC said the BP-Woolworths deal would have taken a big discounter out of the market.

JOHN DURIE
December 14, 2017
The Australian

BP has failed in its attempt to monster the competition watchdog, which has rejected its $1.8 billion deal to buy 531 petrol retail sites from Woolworths. 

The deal is a blow to both parties, a boon to rival and market leader Caltex and, if the Australian Competition and Consumer Commission is to be believed, a big win for Australian consumers.

For Woolworths CEO Brad Banducci the $1.8 billion cash injection would have been a handy boost to his revival plans for the supermarket business which, operationally, would lose little under the deal.

The crux of the ACCC argument is that BP would be taking a major discounter out of the market, which meant petrol prices would rise for all concerned.

This is a big assumption but at this stage it would be surprising if BP challenged the decision in court.

Petrol is one market the ACCC covers intensively and also one in which it has a good insight into the market and the key movers.

It argues BP charges above market prices, Woolworths below, with Caltex in between along with Coles/Shell. 

The combined BP-Woolworths would have controlled around 27 per cent of the market — around the same as Caltex, with Coles next at about 14 per cent.

The only way BP could have succeeded would have been to sell a big chunk of, say, 100 sites to a discounter like United or Puma which would give them more muscle to take on the big guys. 

Both the Coors-advised BP and Clayton Utz-advised Woolies expressed their disappointment at today’s ACCC decision.

The key ACCC player was mergers commissioner Roger Featherston a former King & Wood Mallesons competition partner.

Meanwhile, Coles is stuck in a dud deal with Viva Energy, which has taken over the old Shell retail franchise in Australia, which effectively limits it to charging top dollar on fuel.

This was another reason why the ACCC thought taking Woolworths out of the game would rob the market of a major discounter.

There are some collateral benefits for the likes of the Virgin Velocity loyalty program, which is close to BP and may well have lost out to Qantas, which is tied up with Woolworths.

Woolworths had chosen BP to buy its servo sites because it had agreed to continue the shopper docket program and also use the supermarket to supply its convenience stores.

The shopper docket part of the scheme was approved, subject to a maximum discount of four cents a litre.

Ironically this now means Woolies is free from later next year to charge what it likes when the present undertaking expires.

Some competition lawyers argue there is room to argue against the ACCC market dynamics argument, but just whether BP has the stomach for this fight is problematical.

It clearly rejected the alternate strategy of just buying a portion of the stations and onselling the rest to a discounter, which adds some weight to the ACCC view.

Contrary to popular opinion the ACCC only rejects a tiny minority of deals, which is seen in the fact much of Australian business is held in tight control.

This is one of the few high profile deals to be knocked back this year.