Competition tsar Rod Sims is getting set to take the microscope to an expected $1.6 billion deal by Woolworths to sell its petrol station network to an existing player in what is already a fairly concentrated market.

The Australian Competition and Consumer Commission chairman, for whom the petrol retailing market has long been a pet area of concern, said his preference would be for a new player to take up the Woolworths network to at least maintain the current level of competition.

But all three bidders that are understood to be still involved in the sale process already compete in the market, two with particularly strong positions.

As reported by Street Talk, the sale is down to offshore giants BP and Vitol, the dominant owner of the Viva Energy business which owns the popular Shell-branded sites, and Caltex Australia, which supplies the Woolworths sites under a deal that still has almost 10 years to run.

“We have a particular interest in the petrol retailing market. We want to make it and keep it as competitive as it can possibly be, so it’s fair to say that any sale to any existing player is going to be extremely closely scrutinised by us,” Mr Sims told The Australian Financial Review.

Although he declined to comment on particular competition issues with any one of the supposed bidders, Mr Sims indicated he would find it difficult to wave through a deal by one of the dominant players such as Caltex and Vitol.

“There are two players with nearly half of the market and then another two with decent chunks of it so it’s a a reasonably concentrated market,” he said. “No one’s going to be surprised that we’ll look at any deal pretty thoroughly.”

Only in August the ACCC questioned petrol retailers’ “high” gross margins, saying that consumers weren’t getting the full benefits of low prices for crude oil and refined fuels. The retailers rejected the charge, noting the heavy investments they were making in their retailing sites in response to tightening regulations.

Mr Sims also expressed concern about suggestions in the media that no parties had been involved in the sale process that weren’t already players in the market.

“I did read in one place that no non-existing petrol retailers were invited to apply,” he said.

“That would be concerning if that’s the case. If the market was narrowed down before the whole process started we’d want to understand that a bit better.”

Morgan Stanley is working for Woolworths to test the market for a potential sale, with the supermarket owner confirming in a statement on Friday that it had received “incomplete and conditional proposals from a number of parties” for the business. It said it remained in discussions with a number of parties and had made no decision on the future of the business.

The network, which includes about 500 branded Woolworths stores and about 92 Caltex sites branded as Star Mart convenience stores, sells about 4 billion litres of fuel and generates $130 million to $150 million of earnings before interest and tax.

Caltex, whose chief executive Julian Segal in August confirmed interest in buying the Woolworths network, is understood to believe it can work around competition concerns, potentially with agreements to sell some key sites.

Citigroup analyst Dale Koenders has noted that buying Woolworths’ fuel outlets would further Caltex’s already market-leading position and would likely remove competition in some suburbs. He suggested Caltex might meed to divest about 20 per cent of outlets to get regulatory approval.

Mr Sims said the ACCC had received no approaches from any potential bidder for Woolworths’ fuel business.

An ACCC spokeswoman noted the regulator reviews deals that have the potential to raise concerns under the Competition and Consumer Act of 2010.

“The CCA prohibits acquisitions that would have the effect, or be likely to have the effect, of substantially lessening competition in a market,” she said.

Extracted from Australian Financial Review.

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