In all, Ampol has offered to sell 41 of its combined 1096 sites and divestitures is less than half the original ACCC target. The regulator previously said as many as 115 sites could substantially lessen competition.
Rival Viva has 982 retail sites (mainly Shell), and a combined Ampol/EG will have a market share of around 25 per cent.
Ampol was the market-share leader ahead of the deal with about 20 per cent and gets a clear boost from the decision.
Any approval is complicated as it is subject to divestments.
The timing is also not great due to price rises coming with the end-of-June removal of the government’s 32c fuel excise discount, granted in the wake of the Trump-Iran war.
In referring the Ampol merger to a phase-two investigation in January, mergers commissioner Philip Williams said we “consider that the acquisition could substantially lessen competition in the metropolitan areas of Brisbane, Canberra, Melbourne and Sydney”.
He made clear the regulator had not reached a final conclusion but the order of magnitude difference is telling.
Ampol at first offered to sell 19, which was laughed off by Williams, then responded with an offer to sell 37 in early April, which was again rejected. It came back with 41 in late April.
That seems to be the point at which the $1.1bn deal looks less problematic with more asset sales, and at which time the ACCC was interested.
The regulator has long bemoaned the over-concentrated nature of the Australian economy and history has shown it is much easier to boost competition by preventing deals than trying to pick up the pieces afterwards.
The Ampol decision, due by next Friday, comes after the ACCC-Coles dodgy discount case took another step on Friday when the parties were due to provide proposed orders.
Federal Court judge Michael O’Bryan earlier this month ruled that Coles had misled consumers about its “Down Down” discounts.
Given the two sides are yet to agree on proposed penalties, the issues will be refined further by next Friday ahead of a case management hearing on June 10.
Some say the case could drag on for months.
The ACCC wants penalties, costs and other orders, including a requirement to find another registered charity in addition to those already engaged.
A decision on any Coles appeal may come down to the size of the monetary penalty sought by the ACCC.
There is room for Coles to attempt to challenge aspects of Justice O’Bryan’s ruling but this depends on whether it wants to play the matter out again in a blaze of negative publicity.
Justice O’Bryan’s implied rule that goods can’t be discounted until three months after a price rise, is too long.
The arbitrary timeline is anti-competitive, stopping Coles from cutting prices when it could do so in a more effective way than currently used.
Just where Justice O’Bryan’s decision on Coles gets Ben Demery’s class action is an open question given the difficulty in proving losses from discounts on offer.
Coles may have misled its marketing of the price cuts but as Justice O’Bryan said the earlier price increases were justified, where was the loss from an albeit mispromoted price cut?
The acquisitive Coles has had another three lease deals cleared this year by the ACCC; its proposed Kalgoorlie lease undergoing a prolonged phase-two hearing.
The Ampol decision is the first phase-two ruling by the ACCC under the new regime and decisions are pending on the likely rejection of the IAG-RAC and MicroStar Logistics-Konvoy mergers.
In the year to May 28, the ACCC has received 286 mandatory merger notifications including 168 waiver requests and 118 phase-one deals.
This compares with 50 phase-one and 108 waiver requests in the official first-quarter figures.
Thirty-seven deals are still under assessment, including the Barrenjoey-Magellan, Toronto Stock Exchange-Cboe and the problematic Peter Warren $28m takeover of Wakeling Automotive dealerships.
Complex web of ownership
ACCC chief Gina Cass-Gottlieb has cited transparency as a winner from her new mandatory merger notification allowing the regulator to build a better database of industry.
The June 19 decision about Macquarie Asset Management’s takeover of Qube is a case in point; UniSuper owns 15 per cent of Qube which will convert to more than 20 per cent post the deal as it is a key investor in MAM.
It is also an IFM investor and IFM controls 25 per cent of Melbourne Airport, 33 per cent of Sydney and 20 per cent of Brisbane (all ahead of the supposed 15 per cent limit on airport cross-ownership).
The breach is cleared because different IFM investors have stakes in different airports.
MAM owns half of the Port of Newcastle and hence UniSuper owns 5.5 per cent.
Other MAM vehicle holders include Singapore government-owned GIC, which also owns 12 per cent of rail giant Pacific National.
Another Singapore Inc member, Temasek, owns a big stake in Optus parent Singapore Telecom, 20 per cent in Qube rival Hutchison Ports and 6.5 per cent of Patrick, which is 50 per cent owned by Qube.
You can argue the cross-shareholdings are small and maybe not controlling but you can’t deny it’s a complex web and that is just one Australian infrastructure deal in question.
No wonder the ACCC has flagged industry fund ownership as an item of interest and new AustralianSuper investment chief Shaun Manuell is likely to have a few chats with Cass-Gottlieb.
A vanishing breed
BAML research chief David Errington will retire next month after 35 years in the game – the last three and a half years as head of research.
The exit of the consumer stocks veteran marks a regretful continuation of the trend of “juniorisation of sell-side analysts”.
There are now just a handful left in the market of the “Erro” vintage analysts, who cover a handful of stocks, have deep industry and company knowledge and contacts, have opinions which they aren’t afraid to express, hold management to task and make bold calls against market consensus.
These people deliver value to their clients, even if the investment banking side of the business sometimes cringes at their reports and attempts to censor their work.
They were also prized by the bank because an analyst who carried the market helped deliver lucrative equity capital market deals due to the corporate client wanting them onside.
Several things have changed, starting with commission rates which have fallen from 25 basis points 20 years ago to virtually nothing when a fund manager deals directly, bypassing the broker.
This means there is less money to pay for the independent analyst.
Industry funds and others are increasingly employing their own analysts and the big investment banks are increasingly hiring super-smart juniors who cover 20 or more stocks, leaving no time for thoughtful analysis, lack the industry experience to add much value and don’t have the expertise to hold corporates to account.
About 30 per cent of the market trade is now passive, just following momentum, and with the buy side more concentrated the sell side has less power.
AI will just hasten this trend.
Errington started his career in 1991 as an analyst at the then McIntosh Securities, now BAML – one of the handful of big US banks which over time fall in and out of love with the Australian market.
Research-based houses MST, UBS, Barrenjoey and Macquarie are the standouts in the Australian market for backing analysts, with banks, resources and consumer stocks the key sectors.
Extracted in full from: https://www.theaustralian.com.au/commentary/accc-to-approve-ampols-11bn-purchase-of-eg-after-site-sale-deal/news-story/49731f8580fae2e8fe65f0269775ee7c
The ACCC next week is expected to clear Ampol boss Matt Halliday’s $1.1bn acquisition of EG which will nearly double its retail sites in Australia, after agreeing to sell just 32 of the 512 sites acquired.