Any attempted takeover of Franklins stores by a fellow Australian company will be difficult to approve, was the clear message from the Australian Competition and Consumer Commission (ACCC) yesterday (23 January). It added it would not block offers from a foreign buyer, however.

Responding to media speculation, Franklins has stressed that no deals have yet been made, and the results of a company-wide strategic review initiated by Hong Kong proprietors Dairy Farm six weeks ago are not due until the end of March. At this time, there will be three predominant options for Australia’s third largest supermarket operator (which controls a 12.5% share of the national market and 287 stores) a break up, a recapitalization, or a listing.

During the calendar year 1999-2000, Franklins incurred losses of A$100m, and in a bid to clear debts, analysts estimate that the troubled operator could fetch up to A$500m for its parent company. The high stakes are prompting much speculation on the possibilities of a purchase or takeover.

Dairy Farm is believed to be in the process of selling stores throughout Victoria and South Australia to a Coles Myer/Tesco joint venture. US giant Wal-Mart is understood to be in the running for several outlets in New South Wales.

ACCC opposed to split up of Franklins

Any bid will need approval from the ACCC however, the organisation charged with ensuring healthy competition in the sector. Professor Allan Fels, ACCC chairman, explained why the commission did not welcome approaches from several Australian companies: “If companies were allowed to cherry-pick the best stores it would leave Franklins as a very weak competitor”

“There would still be significant competition problems with an Australian partner in any joint venture, given the already high concentrations of market share.”

“Where Coles or Woolworths would seek to acquire Franklins, the commission would have a very high degree of concerns having regard to the very concentrated nature of the retail market in Australia that is very important for consumers. It is difficult to see how any acquisition by either of them (Coles or Woolworths) wouldn’t be a huge problem.”

Yet to receive formal offers

The ACCC has yet to receive any formal offers for the supermarket outlets, but speculation is rife amid market spectators. Between them, Coles Myer and Woolworths account for 70% of the grocery market in Australia, but this fact may not prevent them from trying to broker a takeover deal.

Does Woolworths want it?

CEO of Woolworths, Roger Corbett, has refused to make any public statement concerning the company’s action over Franklins: “I am not ruling it out or ruling it in.” It has been reported however that the largest retailer in Australia has a plan up its sleeve to win regulatory approval for a purchase. This could involve buying up Franklin’s stores with a view to selling them on to independent operators, part of a larger scheme involving the sale or listing of its wholesale grocery division Australian Independent Wholesalers.

A spokeswoman commented: “We’re watching with interest what’s happening with Franklins. But there’s nothing more to be said at this time.”

Coles Myer, Tesco refusing comment

Others have turned their eyes to Coles Myer, who has similarly declined to comment regarding whether its Bi-Lo unit is involved in a venture with UK giant Tesco to purchase Franklins stores in Victoria and South Australia. This alliance could see the buyout of 60 outlets in Victoria and a further 14 in South Australia.

“We don’t comment on market rumour and speculation,” said a Tesco spokeswoman bluntly.

German giant needs new sites

The German discount retailer Aldi, which entered the Australian market this week, will be looking for new supermarket sites for its expansion, and thus is popularly seen as a frontrunner for a Franklin’s purchase. It is insisting, however that it has no interest in acquisition growth. A statement revealed: “Aldi has a long-term commitment to Australia. Its strategy is to grow organically.”