A $1.1 billion takeover bid by Ampol to increase its service stations network has run into trouble with the competition authorities leading to new concerns about competition in the fiercely competitive market for fuel retailing in Australia.
The Australian Competition and Consumer Commission has indicated concerns regarding a proposed takeover of a major servo franchise suggesting that this would substantially impact competition in a number of local markets.
The consumer protection agency has initiated a formal assessment which implies that this proposed takeover might not be approved without some assets being divested.
Ampol, formerly Caltex Australia has described the acquisition as a strategic move aimed at fortifying its retail business and ensuring a steady supply chain of fuel.
Considering the changes the fuel industry is experiencing including changes in consumer behavior the adoption of electric vehicles and the challenge of falling fuel margins.
A price of $1.1 billion was considered reasonable due to the size of the acquired business.
However, competition regulators are concerned about the deal’s local effects rather than the national reasons for the acquisition.
Commenting on the deal in preliminary analysis, the ACCC observed, “The competition in fuel retailing can be highly localized reflecting the number and proximity of stations and the brands operating them in each local market.”
If Ampol operates a strong presence in a local market adding a further significant fuel retailer may decrease competition and lead to higher prices in that market.
Industry experts believe that Ampol might find it a task to ensure that the regulator is satisfied that the merger would lead to efficiency gains for the business without negatively impacting consumers.
This may involve agreeing on the sale of fuel outlets operating within overlapping areas possibly agreeing to continue the wholesale supplies for independent retailers.
For Ampol there are delays or conditions that might have an effect on the transaction terms.
It is stated that the acquisition is aimed at improving its bottom line and enhancing its scale within the convenience retail business which arises due to the reduced growth in fuel demand.
Sales in convenience stores, food and joint ventures with major retail groups play critical roles in its profitability.
Submissions have been invited by the ACCC from interested parties pending the provision of a provisional response prior to making a final decision.
Pending this, the $1.1 billion merger is in a state of limbo with the outcome uncertain whether the proposed merger between the companies will be allowed in its current form or whether a different form will be required.
The decision is eagerly anticipated by policymakers and the fuel sector and it sets a crucial precedent concerning to what extent merger and acquisitions are possible within a sector that literally impacts almost every family within Australia.
