The Australian Competition and Consumer Commission (ACCC) has given the green light to Woolworths' proposed acquisition of a 55 per cent controlling interest in Petstock, Australia’s second largest specialty pet retailer.

However, the approval comes with a catch - Petstock is required to divest a package of sites and assets, including 41 retail stores.

This decision follows an ACCC investigation into Petstock's past acquisitions, which revealed a series of purchases in the pet industry that had not been notified to the regulatory watchdog. The acquisitions in question include the Best Friends Pets, Pet City, and Animal Tuckerbox chains, as well as the Pet & Aquarium Warehouse store in Eltham, Victoria. The ACCC expressed concerns these acquisitions may have contravened the Competition and Consumer Act. It also had concerns Petstock had acquired its closest competitors in several local markets in Victoria, Western Australia, New South Wales, the Australian Capital Territory, Queensland and Tasmania.

After raising these competition concerns with Petstock and Woolworths, the two retailers offered to provide court-enforceable undertakings to resolve the concerns.

"Petstock had completed a large number of acquisitions in the pet industry in recent years that had not been notified to the ACCC," ACCC Chair Gina Cass-Gottlieb stated. She also voiced concerns about the limitations of Australia's current merger regime, which relies on the goodwill of businesses to voluntarily notify the ACCC of proposed mergers and acquisitions.

"While in this case, the ACCC eventually became aware of the past acquisitions, we cannot know how many other acquisitions have taken place without notification to the ACCC, with potential anti-competitive consequences," Cass-Gottlieb continued. "While we have secured a divestiture that resolves our concerns in this instance, this is a far less efficient and effective way to maintain the competitiveness of Australia's economy. Seeking to restore the competition lost after the fact is not always possible, and is a poor substitute for preventing the loss of competition in the first place.”

Despite these concerns, the ACCC concluded Woolworths’ proposed acquisition of Petstock is unlikely to substantially lessen competition. As such, the ACCC will not oppose the deal.

"Market feedback indicated that specialty pet retail and grocery are distinct channels in the pet industry, and specialty pet retail stores have a very different product and service offering to supermarkets and discount department stores," Cass-Gottlieb said.

However, as part of its undertaking, Petstock will be required to divest 41 specialty pet retail stores, 25 co-located veterinary hospitals, four brands and two online retail stores.

Woolworths Group has welcomed the news. Its CEO, Brad Banducci, reiterated the investment was both a commercial and customer win.

“We are excited that we are now in a position to move forward with our investment in Petstock Group in partnership with the Young family. Petstock Group is a leading Australian and New Zealand specialty pet business," he said in an ASX statement to investors. "As we said at the time of the original announcement, this investment will enable Woolworths Group to meet more of our customers' pet needs and is expected to deliver strong returns for shareholders.”

Woolworths Group’s investment in Petstock will be overseen by a combined board with representatives from both Woolworths Group and the Young Family, with the board to be
chaired by Colin Storrie.

The ACCC commenced a review of Woolworths’ proposed acquisition on 24 January 2023. In March 2023, the ACCC suspended its review to obtain further information from Petstock, and opened an enforcement investigation into Petstock’s completed acquisitions.

Since 2017, Petstock has acquired many other specialty pet retailers including Best Friends Pets, Pet City, Animal Tuckerbox and Pet & Aquarium Warehouse in Eltham, Victoria. These acquisitions have positioned Petstock as the second largest omni-channel Australian specialty pet retailer.