By Elisabeth Sexton
THE ''moribund'' Franklins supermarket chain was ''on its knees'', most of its stores were ''tired and in need of significant work'' and its financial results were ''a dismal picture of decline'', its South African owner told the Federal Court yesterday.
John Griffiths, SC, for Pick n Pay Retailers, said he might be overdoing the metaphors as he added that ''far from being a vigorous competitive constraint, Franklins has been, and is effectively, on life support''.
Justice Arthur Emmett interjected that Metcash ''will pull out if you're not careful''.
In July Metcash, Australia's largest grocery wholesaler, agreed to buy Franklins from Pick n Pay for $215 million. It intends to sell the 80 stores to retailers who sign its wholesale supply contracts.
The Australian Competition and Consumer Commission has taken court action to prevent the acquisition, arguing that it will substantially lessen competition in the supply of wholesale groceries to independent supermarkets.
Metcash and Pick n Pay argue that Metcash's market power is constrained by competition from Woolworths, Coles and Aldi, which have internal wholesaling operations.
In his closing submission yesterday, Mr Griffiths said Franklins, which supplies its own 80 stores and 10 franchise stores, did not constrain Metcash.
Nor would it do so if bought by a group of independent retailers dubbed the KKK consortium, nominated by the ACCC as a pro-competitive purchaser.
''The primary cause of Franklins' failure in Australia has been its lack of scale, its lack of clout, and its lack of buying power with suppliers to enable it to compete effectively in this market,'' Mr Griffiths said.
Pick n Pay argues that if Justice Emmett blocked the sale to Metcash, it would not sell to the KKK consortium, which has made an indicative offer of $110 million, but would reap more from selling the stores individually.
After the ACCC announced its opposition to the Metcash deal in November, Pick n Pay advertised for expressions of interest.
Offers were lodged by 43 parties, including Woolworths, Coles, Metcash, Franklins staff and independent retailers. Excluding stock, Woolworths offered $72 million for 25 stores and Coles offered $44 million for eight stores.
The two bids overlapped for only three stores, which Mr Griffiths said indicated Pick n Pay could extract $98 million for 30 stores. Ritchies Stores, an operator of Supa IGA supermarkets 26 per cent owned by Metcash, offered $90 million for 21 stores.
Mr Griffiths said that between 2001 and 2010, Pick n Pay invested $289 million in Franklins, which made accumulated losses of $105 million.