As Metcash directors front their shareholders at the annual general meeting today they will have some confidence in the outlook for the coming year. More than most operators whose profits depend on shopping, that is for sure.
They supply groceries for one, which is the sweetest spot to be in in a retail downturn. And they have some synergies to look forward to as well. Thanks to last week’s Federal Court judgment, the chief executive, Andrew Reitzer, is cock-a-hoop.
The win against the Australian Consumer and Competition Commission sees off the regulator’s attempts to block Metcash’s $215 million acquisition of Franklins. Picking up 80 Franklins supermarkets at that price is almost a nick.
The commission can appeal, but its case was dismissed comprehensively. On the face of it, this court case looks like a legal triumph of one bunch of lawyers over another. There were big tactical failures in the ACCC case while the Metcash lawyers were reportedly on fire.
Looking further afield than the skirmish between m’learned friends though, it seems counterintuitive that allowing Metcash to buy Franklins and move to a 97 per cent share of non-Coles and Woolies grocery wholesaling is a good idea.
The largest remaining independent, SPAR Australia, certainly thinks so. The “practical reality” of the court decision, according to the SPAR managing director, Lou Jardin, yesterday, is that Metcash will now control almost 100 per cent of the supply of packaged groceries to family-owned shops and supermarkets. The rest of the market is shared by Coles and Woolworths, which account for 70 to 80 per cent of grocery sales.
Jardin has lashed out against the court’s decision in a letter to the Small Business Minister, Nick Sherry, and the independent MPs, Bob Katter, Rob Oakshott, Tony Windsor, Andrew Wilkie, and the Nationals Leader, Barnaby Joyce.
He said the court had left “struggling rural and regional Australians” at the mercy of “a monopolist with monopolist pricing power”.
“Metcash now controls around 97.5 per cent of the supply of packaged wholesale goods to the mostly family-owned … supermarkets. This is even worse than the Coles/Woolworths duopoly,” Jardin wrote.
The ACCC case had sought to block the wholesaler’s $215 million bid to buy Franklins last year. It argued the deal would diminish competition and drive up grocery prices.
And despite the court decision, it is probably right. For Metcash shareholders, if not for regional shoppers though, this is a big win. Reitzer has a track record of bedding down big acquisitions. Foodland was a company-maker.
The challenge now will be to keep a lid on the management’s penchant for aggressive and litigious market practices, such as the abortive four-year legal stoush with an independent grocer, Peter Bunn, which, as reported in these pages the other day, was all about silencing dissent and free speech. There are no long-term winners in that game, apart from the lawyers of course.
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Meanwhile in the Melbourne courts, another set of defence lawyers had a big win. The fine handed out to Andrew Scott, the former chief executive of the Centro Properties empire, is equivalent to 1.05 per cent of his cash pay for 2007, the year when Centro blew up.
The independent directors of Centro, who were also found to have breached the Corporations Act, got off scot-free. The shame was enough, found the Federal Court’s Justice John Middleton.
Further to the relativities, let’s say Andrew Scott worked 48 weeks in 2007 – that is 240 days – the fine was worth 2.52 days’ labour.
Or even better, 20 hours work on his hourly rate of $1489 per hour. Scott received $2.86 million in his final year, including 100 per cent of his performance bonus.
Meanwhile, the non-executive directors were paid $1.1 million in 2007. That was the year they overlooked the billion dollar liability in the Centro accounts, an oversight for which they were found guilty. They get to keep those fees, not to mention the $2.85 million in aggregate over the three years before the cock-up.