GUD to make second bid for Breville?

Metcash shareholders will have followed the Franklins acquisition saga with bemused interest. But in the end the ACCC, the competition watchdog, lost its court battle to stop Metcash buying the distressed grocery chain last month.

The ACCC was very determined to stop Metcash because the deal has implications for merger policy. But essentially the courts agreed with Metcash that the grocery market should be defined widely, to include retailers such as Woolworths and Coles. It makes sense to us that Metcash, which has an effective monopoly in wholesale grocery supply, is still restrained by Woolworths and Coles. Quite why the ACCC can't accept this is difficult to fathom.

So are there any other mergers which the ACCC has previously prohibited, but which might take place under a looser policy regime?

The 2009 bid for appliance company Breville by GUD Holdings is a possible candidate. Back then, the ACCC prevented GUD, which distributes the Sunbeam appliance brand, from acquiring Breville, which distributes the Breville, Kambrook, Goldair, Ronson and Philips brands.

Brand less important than price

The proposed acquisition of Breville by GUD was somewhat different from the Metcash transaction, of course, but the ACCC said in its 2009 judgement that 'brand name reputation is the most significant barrier to both entry and expansion'. I think this shows a lack of basic understanding about how competitive the appliance market is.

I agree that brand is a factor, but price is much more important. If GUD was to raise appliance prices after acquiring Breville, you could be certain that numerous new competitors would spring up, and that consumers and retailers would support them. It's very easy to import from China, as Australian surfboard manufacturers are now discovering.

I'm no ACCC-basher, but under its restrictive policy regime, it has been effectively preventing some companies from competing effectively. Metcash needs to be a strong competitor to stand up to Woolworths and Coles. GUD's Sunbeam division needs a solid market position to see off import competition (which is only likely to intensify, in my view).

Now that the courts have embraced a wider market definition when it comes to merger policy, I'm betting some formerly prohibited takeovers might eventually get the green light. Breville looks like a sitting duck.

[Please note this isn't a prediction that Breville will be acquired soon. GUD has since bought Dexion and Breville's share price has risen substantially since the failed 2009 bid.]

Disclosure: The author, James Greenhalgh, owns shares in Metcash, as do other staff members.

What do you think? How important is brand when you choose a small appliance? Are there any other mergers that might take place under a looser market definition?