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

The Guardian - - FINANCIAL - An­gela Mon­aghan and Zoe Wood

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

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