Woolworths says it is disappointed with the consumer watchdog's decision to oppose the $1.8 billion takeover of its service stations by BP Australia, and will now assess its options.
The Australian Competition and Consumer Commission says the deal would substantially lessen competition as fuel prices would probably increase at the Woolworths sites if BP were to buy them.
Woolworths currently operates 531 sites and has 12 sites in development, while BP supplies fuel to approximately 1,400 BP-branded service stations throughout Australia, setting fuel prices at roughly 350 of them.
Following a nine-month review of the proposed acquisition, ACCC chairman Rod Sims said Woolworths was a "vigorous and effective" competitor that has an important influence on fuel prices and price cycles in many markets.
"Many consumers seeking out cheaper petrol will head to Woolworths petrol stations," Mr Sims said.
"The bottom line is that we consider motorists will end up paying more, regardless of where they buy fuel, if this acquisition goes ahead."
Woolworths said in a statement it was disappointed with the decision and would work with BP to assess the options.
"We have worked closely over many months with BP and the ACCC through an extremely rigorous and demanding process," the supermarket giant said.
Mr Sims said the acquisition would have a "major impact" on motorists and likely affect metropolitan price cycles by making the price jumps quicker, larger and more co-ordinated.
"Reduced competition will also mean that prices will not fall as far, or as quickly, in the discounting phase of the cycle," he said.
Meanwhile, Caltex Australia said it would continue to provide reliable and high quality fuel to Woolworths and its customers in line with its current supply agreement.
In a separate decision, the ACCC said it would conditionally approve Woolworths and BP's proposal in regards to shopper docket and rewards loyalty program.
The ACCC previously said it had issued a draft decision allowing BP service stations to participate in Woolworths' Rewards Loyalty Program and accept shopper dockets, as that would likely result in "some public benefits".
On Thursday, the watchdog said BP and Woolworths must limit shopper docket and loyalty scheme discounts to no more than four cents per litre (in total per fuel purchase) and Woolworths is not permitted to fund more than two cents of the discount.
The supermarket chain's shares were down 0.8 per cent to $26.83 at 1055 AEDT on Thursday.
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