Tesco-booker deal to be subject to regulator scrutiny

● CMA inquiry will look at whether merger cuts competition for consumers

An investigation into Tesco’s £3.7 billion agreed takeover of wholesaler Booker was launched yesterday by the Competition and Markets Authority (CMA) to see if the deal would reduce competition and curb customer choice.

Tesco, Britain’s biggest supermarket group, with a 27 per cent food retailing market share, announced the cash and shares offer last January, as it seeks a new source of growth under chief executive Dave Lewis given Booker’s role as a major distributor to the catering industry.

The regulatory announcement will also be noted by Tesco rival Sainsbury’s, with a near 17 per cent market share, which was reported last week to be weighing a takeover bid for wholesaler Palmer & Harvey (P&H).

The CMA inquiry’s first phase will run until 25 July, and will also focus on the fact that Booker owns convenience store chains such as Londis and Budgens as franchised outlets, supplies restaurants including Wagamama and Carluccio’s, and operates the Makro cash and carry business.

Tesco has come under fire from a minority of its institutional investors over the move, with some investors branding the takeover tilt a “distraction” and urging it to be scrapped.

But Lewis has shrugged off the criticisms, repeating in March that he was “completely committed” to the deal.

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”.

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

Tesco has said the takeover would create “the UK’S leading food business” and deliver significant cost savings for the combined group.

Among its recommenda tions, the CMA could force Tesco to offload stores if it feels the deal was anticompetitive for both consumers and small convenience stores, the latter being seen as in competition with Tesco’s lower priced categories.

Booker saw pretax profits jump 15 per cent to £174 million in the year to 24 March, with sales at Budgens and Londis more than doubling to £700m.

Meanwhile, Sainsbury’s is said to be mulling a takeover bid for P&H after the 90yearold firm was put up for sale.

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

Many analysts believe that any swoop on the group would be a defensive riposte by Sainsbury’s in the face of the TescoBooker deal. Last year Sainsbury’s chief executive Mike Coupe clinched the takeover of Argos, the catalogue showroom and digital household goods business.

Since the takeover Argos has outperformed its new parent company in samefloorspace sales growth.