Woolworths Group Ltd (ASX: WOW) shares are falling on Thursday.
In morning trade, the retail giant's shares are down over 1% to $36.86.
Why are Woolworths shares falling?
There have been a couple of catalysts for today's weakness. The first is a broad market selloff following a poor night of trade on Wall Street.
The other is Australian Competition and Consumer Commission (ACCC) concerns over the company's proposed acquisition of a 55% stake in Petstock.
According to the release, earlier this year the ACCC became aware that Petstock had been on an acquisition spree of its own in recent years. It highlights that Petstock completed numerous acquisitions between 2017 and 2022 that were not notified to the ACCC.
Under the Competition and Consumer Act, the ACCC can seek court-ordered divestiture of shares or assets acquired in breach of the merger law for a period of three years after completion of a transaction. It can also seek penalties orders for a period of six years.
At this stage, the ACCC has "particularly significant concerns that four of Petstock's past acquisitions may have contravened section 50 of the Competition and Consumer Act."
These are its acquisitions of Best Friends Pets, Pet City, Animal Tuckerbox, and Pet and Aquarium Warehouse in Eltham.
It is worth noting that the ACCC isn't necessarily alleging any wrongdoing. But rather that current requirements are insufficient and this has slipped under its radar. ACCC Commissioner Stephen Ridgeway said:
Our investigation so far has identified significant concerns with these four transactions in particular because of their impact on national and state-wide chain-on-chain competition, as well as competition in multiple local areas. While there is currently no mandatory requirement for merger parties to notify the ACCC, the decision taken here to proceed with acquisitions of this scale without seeking ACCC clearance demonstrates the limitations of the current informal merger regime in Australia.
What now?
Petstock and Woolworths have now each offered to provide court-enforceable undertakings to resolve the ACCC's concerns with these completed acquisitions.
As part of its undertaking, Petstock is proposing to divest 41 specialty pet retail stores, 25 co-located veterinary hospitals, four brands and two online retail stores.
The ACCC is now seeking views on the proposed divestiture offered by Petstock.
Woolworths' response
Woolworths has responded to the news today. It said:
Woolworths Group acknowledges the ACCC's current consultation on a proposed divestiture package of stores acquired by Petstock Group during 2021 and 2022. These transactions all pre-date Woolworths Group entering into an agreement to acquire a 55% equity interest in Petstock Group.
Woolworths Group remains focused on working with the Petstock Group founders to complete the proposed acquisition and will engage with the ACCC as part of this consultation to ensure all regulatory approvals are in place prior to completion.
One thing that remains unclear is whether this development will impact the price Woolworths ultimately pays for the stake in Petstock.
