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Wesfarmers share price set to climb on Catch Group takeover approval

The Wesfarmers Ltd (ASX: WES) share price looks set to climb this morning after the Australian Competition and Consumer Commission (ACCC) approved its proposed acquisition of Catch Group.

What did the ACCC say in its announcement?

The ACCC this morning announced that it has decided not to oppose the proposed acquisition of online retailer Catch Group by Wesfarmers.

Wesfarmers (through its Kmart and Target stores) and Catch both retail a variety of products to consumers, ranging from clothing and general merchandise to homewares and electronics.

Catch offers out-of-season, clearance or overrun branded products, as well as operating a growing online marketplace through which third-party sellers supply products.

“We reviewed whether Wesfarmers’ retail position could be leveraged into online sales and marketplaces in an anti-competitive way,” ACCC Commissioner Stephen Ridgeway said.

“The current growth in online marketplaces is fostering competition between providers, and feedback indicated that Wesfarmers’ proposed acquisition of Catch would be unlikely to change that level of competition.”

“Stakeholders also consistently told us that Catch and Wesfarmers are not close competitors, primarily due to the differences in their business models,” Mr Ridgeway said.

What’s the story behind the Catch acquisition?

The ACCC commenced a review of Wesfarmers’ proposed Catch acquisition on 14 June 2019.

Kmart and Target operate approximately 505 bricks-and-mortar stores throughout Australia, and both operate online stores, leading to ACCC anti-competition concerns about online retail.

Catch is a privately owned Australian online retailer and marketplace that launched in 2017 and has successfully grown its online sales volumes in the years since its inception.

The ACCC’s review of the proposed acquisition examined both physical and online retail competition, as well as whether there would be any potential impact on third-party marketplace sellers.

Foolish takeaway

This morning’s ACCC approval is good news for Wesfarmers and its investors, and I’d expect to see the company’s share price to continue to climb higher in morning trade.

At the time of writing, the Wesfarmers share price is up 0.75% to be trading for $39.15 per share.

The Catch Group acquisition is the latest in a number of attempted or completed acquisitions by Wesfarmers as it is currently sitting on significant dry powder, following its failed takeover of Lynas Corporation Ltd (ASX: LYC).

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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