BP mulls options as ACCC blocks Woolworths servos takeover

ACCC chairman Rod Sims. Illustration: Sturt Krygsman. 

JOHN DURIE
December 15, 2017
The Australian

BP is looking hard at its appeal options after the competition watchdog rejected its $1.8 billion deal to buy 531 petrol retail sites from Woolworths.

The loss is probably bigger for BP than for Woolies, which means it would be the more likely aggressor. It also means that while BP takes on the ACCC, Woolies would have to be prepared to sit around and wait until the lawyers have done their bit, and just maybe Woolies chief Brad Banducci has other offers in the wings.

BP has British consultant CRA on board and highly prized silk Cameron Moore QC on retainer, but it is still considering its options.

The most obvious route would be to simply tell the ACCC it has read its opinion, doesn’t think much of it and that it will proceed with the transaction. The regulator would then be forced to take the matter to the Federal Court to seek an injunction to stop the deal and the argument could be run again.

Another option would be to come back and seek formal clearance, which would be problematic because public benefit is hard to see. If the ultimate aim is to get to the Australian Competition Tribunal, that is more difficult now because you have to go through the regulator first. 

This would be a minimum six-month process, but the Federal Court route could be even longer.

From where BP sits the ACCC has issues in Brisbane, Melbourne and Perth.

BP had offered to sell a bunch of stations to known aggressors like United, Puma and 7- Eleven, but the ACCC thought this either wasn’t enough or too complicated.

BP had promised to sell, which is different from actually landing in ACCC boss Rod Sims office with a contract in hand and a definite buyer.

Petrol is a tough fight because it is one market the ACCC knows back to front, and tends to run in circles, with BP allegedly the first to lift prices and the last to cut them while Woolies, along with Puma and United, is among the first to cut.

BP tends to like big stations on the highway while 7-Eleven likes the corner shop and Caltex the main road.

To complicate matters further, Coles boss John Durkan is pulling his hair out trying to work out how he can talk Viva (the new Shell ­retailer owner) to be more responsive. 

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

For Woolworths’ Banducci, the $1.8bn 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. 

The ACCC argues BP charges above market prices, Woolworths below, with Caltex in between along with Shell and its reluctant partner John Durkan at Coles.

The combined BP-Woolworths would have controlled about 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 Corrs-advised BP and Clayton Utz-advised Woolies ­expressed their disappointment at yesterday’s ACCC decision. 

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

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 in what would have been a neatly packaged transaction. 

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

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

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

BP clearly didn’t progress the alternative strategy of just buying a portion of the stations and on- selling the rest to a discounter.

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

This is one of the few high profile deals to be knocked back this year, another being the APN-oOh Media deal. 

The question now is whether BP wants to take on the regulator on its home turf.

Separately, the ACCC has ­concluded its car industry report with three key reforms: mandatory sharing of data with car repair shops and the vendor agents, a ­reminder to dealers that the ­consumer laws set wider standards so they can’t hide behind warranties, and a warning that real road tests tell a different story than the car companies on fuel consumption.