Woolworths shares rise on Petstock acquisition approval news

Woolworths' acquisition has finally been approved and strong returns are expected.

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Woolworths Group Ltd (ASX: WOW) shares are rising on Thursday morning.

At the time of writing, the retail giant's shares are up 1% to $36.94.

Why are Woolworths shares rising?

As well as getting a boost from a booming share market, there has been some good news giving Woolworths' shares a lift today.

That news is that the Australian Competition and Consumer Commission's (ACCC) will not oppose its acquisition of a 55% equity interest in Petstock Group.

According to the release, the ACCC has accepted Petstock Group's undertaking to divest 41 specialty pet retail stores, 25 co-located veterinary hospitals, and two online retail stores to get the deal over the line.

These divestments were in response to the recent revelation that Petstock Group had been making acquisitions that were not notified to the ACCC due to the current informal merger regime.

In light of the divestment undertaking, there has been an adjustment to the previously disclosed purchase price. It is now expected to be $438 million for the 55% equity interest, which is down from $586 million.

Woolworths has welcomed the ACCC decision and advised that it expects the acquisition to complete on 3 January.

Woolworths' CEO, Brad Banducci, was very pleased with the news. He said:

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. 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.

The ACCC may have approved this acquisition, but it certainly didn't hold back in its criticism of current merger rules. It commented:

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. And 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.

The ACCC needs better laws to enable it to become aware of and properly scrutinise mergers before they occur, and to prevent those likely to substantially lessen competition. Consumers ultimately bear the risk that anti-competitive mergers will complete without scrutiny and increase prices, reduce quality or reduce service levels.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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