Buyer dropped from Metcash case

THE Australian Competition and Consumer Commission has abandoned one of the two potential buyers of Franklins it nominated in its Federal Court bid to block Metcash from buying the supermarket chain.

By InvestSMART · 8 Apr 2011

By InvestSMART ·
8 Apr 2011

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THE Australian Competition and Consumer Commission has abandoned one of the two potential buyers of Franklins it nominated in its Federal Court bid to block Metcash from buying the supermarket chain.

The regulator no longer puts forward SPAR Australia, a small Queensland grocery wholesaler controlled by a former executive director of Metcash, Lou Jardin, as a pro-competitive alternative owner of Franklins.

Called to give evidence by the ACCC last month, Mr Jardin had a tense time in the witness box which included a rebuke from Justice Arthur Emmett when he avoided answering questions about whether SPAR had a warehouse in NSW.

"Do you have any real doubt as to what a warehouse is, what the word means?" the judge said on March 17. "I am getting the impression, Mr Jardin, that you are not trying to help the court."

In a written closing submission filed yesterday and prepared before the ACCC dropped SPAR, Metcash's barrister, Peter Brereton, SC, said Mr Jardin "presented as an evasive, obstructive and unsatisfactory witness". Mr Brereton's submission also referred to evidence of SPAR's "precarious financial position".

In his opening submission on March 14, the barrister for the ACCC, Norman O'Bryan, SC, said both SPAR and Mr Jardin, who became its major shareholder and chief executive in December after a falling out with Metcash, "have extensive experience in the supply of wholesale packaged groceries to independent supermarkets".

SPAR and a group known as the KKK consortium were both "plausible potential acquirers of the Franklins assets", he said.

Yesterday Mr O'Bryan said the only alternative buyer to Metcash now nominated by the ACCC was the KKK consortium, comprising companies associated with independent retailers Theo Koundouris, Vasilli Karellas, John Krnc and Peter Lionis. The consortium made a non-binding indicative offer for Franklins of $110 million last year.

John Griffiths, SC, for the South African owner of Franklins, Pick 'n Pay Retailers, said the ACCC's abandonment of the SPAR aspect of its case "may have implications" when applications for reimbursement of legal costs are made after the trial.

The ACCC brought the case on the basis that Metcash will become a monopoly supplier to independent supermarkets in NSW and the ACT if its deal to buy Franklins for $215 million proceeds.

Yesterday Mr O'Bryan said the KKK consortium had produced a 2010 business plan showing it could be profitable and viable if it bought Franklins and charged independent retailers only half the wholesale mark-up charged by Metcash.

The plan said the consortium would run the Franklins warehouse operation as "a cost centre plus a 2.5 per cent margin".

"This will be discounting the [Metcash] margin by 50 per cent, so it will be very, very attractive for independent retailers indeed," Mr O'Bryan said.

The trial has been adjourned until Monday week.

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Frequently Asked Questions about this Article…

What recent change did the ACCC make in the Metcash buy Franklins court case?

The Australian Competition and Consumer Commission (ACCC) dropped SPAR Australia as one of the two potential alternative buyers it had nominated in its Federal Court bid to block Metcash from buying Franklins. That leaves the KKK consortium as the only alternative buyer put forward by the ACCC. The ACCC brought the case arguing Metcash would become a monopoly supplier to independent supermarkets in NSW and the ACT if its $215 million deal for Franklins proceeded. The trial has been adjourned until Monday week.

Why did the ACCC abandon SPAR Australia as a proposed buyer of Franklins?

The article reports the ACCC no longer put forward SPAR Australia as a pro‑competitive alternative. That followed tense evidence from SPAR’s major shareholder and CEO Lou Jardin, including a rebuke from Justice Arthur Emmett when he avoided answering questions about whether SPAR had a warehouse in NSW. Metcash’s barrister also described Jardin as an 'evasive, obstructive and unsatisfactory witness' and pointed to evidence of SPAR’s 'precarious financial position.'

Who is Lou Jardin and what was his role in the Franklins court proceedings?

Lou Jardin is a former Metcash executive director who became the major shareholder and chief executive of SPAR Australia in December after a falling out with Metcash. He was called to give evidence for SPAR and had a difficult time in the witness box, including being chastised by the judge for avoiding direct answers about SPAR’s operations in NSW.

Who makes up the KKK consortium and what offer did they make for Franklins?

The KKK consortium comprises companies associated with independent retailers Theo Koundouris, Vasilli Karellas, John Krnc and Peter Lionis. According to the article, the consortium made a non‑binding indicative offer for Franklins of $110 million last year and is now the only alternative buyer nominated by the ACCC.

What is the ACCC’s competition concern about Metcash’s proposed $215 million purchase of Franklins?

The ACCC’s case is that if Metcash completes its $215 million deal to buy Franklins, Metcash could become the monopoly supplier of wholesale packaged groceries to independent supermarkets in New South Wales and the Australian Capital Territory, reducing competition in the wholesale supply market.

What did the KKK consortium’s business plan claim about pricing and profitability for Franklins?

The consortium produced a 2010 business plan that the ACCC said showed the KKK group could be profitable and viable if it bought Franklins. The plan proposed charging independent retailers only half the wholesale mark‑up charged by Metcash and running the Franklins warehouse as 'a cost centre plus a 2.5 per cent margin,' effectively discounting the Metcash margin by 50% to make the offering attractive to independents.

Could the ACCC dropping SPAR affect legal costs or reimbursement claims after the trial?

Yes. John Griffiths SC, acting for Franklins’ South African owner Pick ’n Pay Retailers, said the ACCC’s abandonment of the SPAR aspect of its case 'may have implications' when applications for reimbursement of legal costs are made after the trial. The article does not detail specific outcomes, only that there could be consequences for cost claims.

What is the current status of the court case and what should investors watch next in the Metcash‑Franklins matter?

As reported, the trial has been adjourned until Monday week. Investors following the Metcash‑Franklins dispute should watch for the resumption of the Federal Court hearing and any rulings on the ACCC’s competition claims, the viability of the nominated alternative buyer (the KKK consortium), and any decisions related to legal costs—each of which could influence the future of the proposed $215 million acquisition.