Tesco’s £3.7bn Booker buyout gets green light
Watchdog rules takeover is not bad for competition Rivals fear deal could put them out of business
Tesco’s £3.7bn takeover of the cash-andcarry group Booker has been given the provisional go-ahead by the competition watchdog despite rivals warning the deal could drive them out of business.
After spending six months considering evidence from competitors, the Competition and Markets Authority (CMA) has concluded that the merger of Tesco and Booker – the UK’s biggest retailer and grocery wholesaler respectively – is not bad news for shoppers.
“Our investigation has found that existing competition is sufficiently strong in both the wholesale and retail grocery sectors to ensure that the merger between Tesco and Booker will not lead to higher prices or a reduced service,” said Simon Polito, the chair of the inquiry group.
Some analysts were stunned that the watchdog appeared ready to wave through such a large and controversial deal without asking for concessions, when in 2015 it agonised over Poundland’s £55m takeover of the 99p Stores chain. Last month a group of wholesalers, speaking for 60% of the market, jointly wrote to the CMA stating the deal would hand Tesco “incontestable power over the procurement of all grocery categories in the UK”.
A Shore Capital analyst, Clive Black, said: “The wholesale trade in particular will be wondering why on earth it ever bothered engaging at all with the CMA. If Tesco and Booker can merge with unconditional approval, then the scope for further large-scale consolidation cannot be ruled out.”
Tesco has 3,200 UK stores whereas Booker supplies 117,000 independent retailers, a headline figure that includes 5,500 retail stores under its brands Premier, Londis, Budgens and Family Shopper. If the deal gets formal clearance next month it will create a retail and wholesale giant with a turnover approaching £60bn.
When the acquisition of Booker was announced in January the Tesco boss, Dave Lewis, said the merged group would be able to cut running costs by £200m a year. But some think that figure could be as much as £500m, and Black said suppliers would have mixed feelings about the deal. “Those synergies have to come from somewhere and suppliers will be at the heart of Dave Lewis and [the Booker chief executive] Charles Wilson’s thinking.”
In the summer the CMA referred the deal for an in-depth investigation over concerns that the tie-up could result in higher prices in about 350 areas across the UK. But after analysing the impact of the merger in every area where a Tesco and a Booker-supplied shop were both present – more than 12,000 shops – it decided that competition was strong enough to see off any attempt to profiteer.
The CMA said Tesco and Booker do not compete head-to-head in most of their activities. It gave the example of the catering sector, where Tesco is not a player but Booker has 441,000 customers, including major chains such as Byron and Wagamama, and rings up over 30% of its sales.
Tesco welcomed the CMA’s approval and said the deal was expected to be completed in early 2018. “This merger has always been about growth, and will bring benefits for independent retailers, caterers, small businesses, suppliers, consumers and colleagues,” said the retailer.
The deal has not been welcomed by all Tesco’s shareholders. In March Schroders and Artisan Partners, two of its biggest shareholders, came out against the deal, urging Lewis to focus on turning around the chain. In recent years Tesco has been hit by growing competition from discount chains and an accounting scandal.
Tesco shares closed up 6% at 187.9p while Booker also rose more than 6% to 211.3p as the update removed some of the uncertainty clouding the deal.
‘The wholesale trade will be wondering why it bothered engaging’ Clive Black, analyst