Pick n Pay 'still has options'

Analysts say Pick n Pay would not have problems finding buyers if it sells Franklins, its doomed Australian venture, piecemeal - even though it is the least-favoured option.

The group is committed to leaving Australia and, according to Dennis Cope, Pick n Pay's chief financial officer, it needs to do so as "expeditiously" as possible.

This after the retailer's R1.4-billion sale of Franklins was blocked by the Australian Competition and Consumer Commission. Pick n Pay, which owns about 90 loss-making Franklins supermarkets in the state of New South Wales, had planned to sell its stores to Metcash.

"If this deal had been approved, we would have been out of there by the end of the year," said Cope.

The decision to sell Franklins was one of Gareth Ackerman's major decisions since taking over as chairman from his father Raymond.

Ackerman said the company was " surprised and disappointed by the commission's decision and (we) fail to see how it could view the proposed sale to Metcash as lessening competition".

He added that the sale was in the best interests of Australian consumers. The group has received no "credible" offer for the Franklins business from any other parties.

Syd Vianello, an analyst at Nedcor Securities, said that with the benefit of hindsight, going to Australia had not been a good idea.

"They know it was a bad investment and that is why they are selling it," he said.

Pick n Pay could now have to sell Franklins piecemeal, requiring negotiations with a number of potential buyers and likely prolonging the group's exit from Australia.

SA's second-largest grocery chain bought Franklins in 2001 for R139-million when Sean Summers was chief executive.

At the time, Summers had promised shareholders that the Australian venture would show good profits within 24 months.

The group has invested about A$290000 over the nine years in Australia.

Warren Buys, portfolio manager at Cadiz Holdings, said the failed sale was "quite disappointing".

Had the deal gone through, Metcash would have increased its percentage of independent retailers that it supplied in New South Wales (NSW) to 17% from 11%.

Graeme Samuel, chairman of the Australian Competition and Consumer Commission said: "Central to the commission's concerns is that the proposed acquisition is likely to result in a substantial lessening of competition through the removal of Metcash's closest and only genuine competitor for the wholesale supply of packaged groceries in NSW."

Metcash (no relation to the SA business of the same name) is Australia's largest wholesaling and distribution company, servicing independent grocery retailers throughout Australia.

Samuel said in his review that the commission found "the proposed acquisition would have reduced the number of players competing to provide these services from two to one, effectively giving Metcash a monopoly on grocery wholesaling to independent supermarkets in NSW".

Turnover in Franklins for the six months ended in August 30 decreased by 3.5% to A$417.5-million, with operating losses of A$11.3-million incurred against a profit of A$1.8-million in the corresponding period last year.