Corrs In Brief: Metcash update – ACCC injunction rejected

The Federal Court has rejected the ACCC’s application for an injunction to restrain Metcash from undertaking the proposed acquisition of Franklins. As a result the acquisition is now likely to proceed and be completed by the end of this month.

On 15 September 2011, following the adverse finding of Justice Emmett, the ACCC applied to the Federal Court for an urgent injunction preventing Metcash from completing its acquisition of Franklins, pending the ACCC ’s appeal of the primary decision. Today (20 September 2011) Justice Jacobson of the Federal Court dismissed the application.

The result of this dismissal will be that Metcash is likely to acquire the Franklins business by 30 September 2011 (the extended completion date of the share sale agreement). The primary decision will still be subject to an appeal, with the hearing date expedited on the order of Jacobson J.

The decision to reject the injunction application was based on the following reasoning.

1. The ACCC could not point to any glaring error in the primary judgment – Jacobson J found that the ACCC ’s concerns with the primary decision could be best described as debatable, rather than indicative grounds for a successful appeal. In particular, the ACCC ’s contention that it should not be required to establish the counterfactual on the “balance of probabilities” was not determinative, as in any case Emmett J was not persuaded that the counterfactual had been established on the lower “real chance” standard.
2. The appeal would not be rendered nugatory if the injunction was refused – The ACCC publicly announced that it was appealing for two reasons: concerns about competition in the grocery industry; and the decision would significantly change merger analysis principles and possibly restrict the ACCC’s ability to block anti-competitive mergers. Noting this second objective, Jacobson J held that contesting the legal principles applied by Emmett J could be facilitated without the need to restrain Metcash.
3. The balance of convenience lay with the transaction proceeding – Jacobson J held that the consequences of an injunction on Franklins, in terms of its corollary negative financial affects, off-set any concerns of the ACCC that the transaction, if completed, would be anticompetitive.
4. Concerns about divestitures are not insurmountable – Jacobson J held that the expedited appeal, and the fact that all potential buyers would be apprised of the appeal process, meant that the difficulties of divestiture orders in circumstances where Metcash sells Franklins shares to independent purchasers should not be given such weight as to support a grant of interim relief.
5. The ACCC did not provide sufficient evidence to support its case – Like in the initial proceedings, Jacobson J held that the ACCC provided no evidence that a third party would purchase the Franklins business if a share sale agreement did not proceed, nor that the Metcash agreement completion date would be extended if the injunction was granted.