Tesco and Booker merger inquiry begins

The UK’s competition watchdog has launched an investigation into Tesco’s £3.7 billion deal to merge with food wholesaler Booker.

The Competition and Markets Authority (CMA) said the initial probe will last until July 25 and will discover whether the tie-up will curb choice for customers.

Tesco has faced criticism over the move, with some shareholders branding the takeover tilt a “distraction”.

In a statement, the CMA said it will “assess whether the deal could reduce competition and choice for shoppers and other customers, such as stores currently supplied by Booker”.

The deal may face a further investigation, which could last 24 weeks, if it fails to win clearance during the first phase.

Tesco announced the deal in January, saying it would create “the UK’s leading food business” and deliver significant cost savings for the combined group.

Among its recommendations, the CMA could force Tesco to offload stores if it feels the deal will harm competition within the industry.

Tesco chief executive Dave Lewis has brushed aside calls to stop the tie-up in its tracks, reaffirming in March he was “committed to the deal”.

Booker is the country’s largest wholesaler and owns Londis and Budgens.

The firm saw annual pre-tax profits jump 15% to £174 million to March 24 this year.

The announcement follows reports on Friday that Sainsbury’s is mulling a takeover approach for wholesaler Palmer and Harvey.

P&H has a turnover of more than £4bn a year and supplies alcohol, groceries and frozen food to 90,000 outlets, including Tesco supermarkets.

Jonathan Buxton of Cavendish Corporate Finance, said a deal would be a defensive move by Sainsbury’s in the face of the Tesco-Booker deal.

Tesco and Booker are hoping to merge in a £3.7bn deal.