Viva Energy’s proposed acquisition of the OTR convenience store chain for $1.15 billion is set to undergo a public review by the Australian Competition and Consumer Commission (ACCC), as analysts warn of potential market power concerns in South Australia. The deal, which would give Viva Energy ownership of OTR’s 205 stores across the country, has been hailed by Viva Energy as a “transformative” move that will expand its convenience offerings, including cafes, quick-serve restaurants, and groceries, which are expected to become more important as electric vehicle charging times increase.
The acquisition of OTR, with its highly successful retail offerings at its service stations, is expected to be a key driver in Viva Energy‘s strategy to grow its non-fuel earnings from 30% to 50% of profit. The company has indicated that it intends for OTR to replace Coles Express as its flagship convenience brand “over time.” In a $300 million deal last year, Viva Energy acquired the Coles Express convenience business, which it had previously operated in a joint venture with Coles.
While Viva Energy has touted the benefits of the deal, concerns have been raised about the potential for the combined group’s market power in South Australia, particularly given the high concentration of fuel and convenience stores in the state. Analysts predict that the deal could give Viva Energy over a 50% market share in Adelaide, which could trigger market concentration concerns. Tom Allen, an analyst at investment bank UBS, has suggested that combining OTR’s approximately 160 integrated fuel and convenience stores in South Australia with Viva’s 43 Coles Express sites could raise market concentration concerns, especially given “how focused the ACCC remains on competitive dynamics in the retail fuel market.”
Despite some analysts warning that the deal could face challenges from the ACCC, others believe that the concerns may not be too significant, as Viva Energy only operates 43 sites in South Australia, while OTR has 15-20 existing sites outside the state. Macquarie Research has suggested that the ACCC issues may not be “too material.” OTR’s network includes 184 integrated fuel and convenience stores and 31 standalone retail stores, generating more than $3 billion in revenue a year and employing around 6,500 people.
In any case, the acquisition of OTR by Viva Energy is seen as a significant development in the fuel and convenience store sector, with the combined group set to become a major player in the market. Viva Energy CEO Scott Wyatt has described OTR’s non-fuel retail offering as the “best in the country, possibly one of the best in the world,” with more than 70% of its profits coming from non-fuel sales. The public review by the ACCC will focus on the potential impact of the deal on competition and consumer choice in the fuel and convenience store sector, with the final decision on whether to approve the acquisition to be made by the regulator.
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