Samantha Enslin-Payne

Pick n Pay will push ahead with the sale of Franklins to Metcash despite the competition authorities in Australia opposing the deal, a brazen move that may give it more headaches in the long run.

Yesterday in a brief statement Pick n Pay said that Metcash had notified the Australian Competition and Consumer Commission (ACCC) that in less than five days from yesterday it intended to take further steps to proceed with the proposed deal.

Pick n Pay and Metcash have agreed to extend their agreement in relation to the sale of Franklins to Metcash to June 30 next year.

Earlier this year, the JSE-listed food retail chain announced that it would sell Franklins to Metcash for A$215 million (R1.5bn). But last week the ACCC said it would oppose the deal as it would effectively be giving Metcash a monopoly on grocery wholesaling to independent supermarkets in New South Wales.

Metcash is Australia’s largest wholesaling and distribution company servicing independent grocery retailers throughout Australia, including those under the IGA and Supa IGA banners. Franklins operates 80 corporate-owned and eight franchised supermarkets in New South Wales.

Gareth Ackerman, the chairman of Pick n Pay, said yesterday that the risk associated with Metcash challenging the ACCC was that if the matter ended up in court Pick n Pay might then have to sell the stores separately.

But it was sticking with Metcash as there had been no other credible bids for the business.

Asked whether it might be wiser to hang on to Franklins for longer until another buyer emerged, Ackerman said: “We have made the decision to exit” as Franklins was tying up capital that needed to be redeployed elsewhere to get a better return.

Abri du Plessis, the chief investment officer at Gryphon Asset Management, said that such a brazen approach of challenging the competition authorities was quite risky, given that Pick n Pay might have to unwind the transaction later at greater cost.

This happened when it bought Fruit Veg City and was already integrating the business when local authorities opposed the deal.

Du Plessis said Pick n Pay, which would not find another buyer now, should rather retreat and try to sell again in a few years.

“I am not impressed with the whole story,” Du Plessis said, commenting on Pick n Pay’s decision to enter Australia with the Franklins business and now the issues it had in trying to exit.

“I question their whole strategy regarding offshore exposure,” Du Plessis said.

Pick n Pay is pursuing opportunities elsewhere in Africa. It operates a store in Zambia with four due to open next year. It has 17 stores in Namibia, 12 in Botswana, seven in Swaziland and one in Lesotho. It has increased its stake in TM in Zimbabwe and is expanding into Mozambique.

Pick n Pay shares fell 1.1 percent to R47.98 yesterday.