Tesco's £3.7 billion Booker tie-up provisionally cleared

Andrew Cummings
November 14, 2017

The CMA found that Tesco as a retailer and Booker as a wholesaler, supplying to caterers, independent and symbol group retailers, did not compete head-to-head in most of their activities.

One of the major concerns for independent retailers previously highlighted by the regulator were fears that Tesco would increase Booker's wholesale prices to independent retailers in order to drive sales in its Tesco Express and One Stop stores.

Panel members at the CMA investigated how bringing together the UK's largest grocery retailer and the UK's largest grocery wholesaler, which supplies the pub sector, would affect competition.

Tesco's £3.7 billion takeover of wholesale group Booker has been given the provisional green light after the competition watchdog said it would not lead to higher prices or hit service for shoppers.

The CMA gave provisional clearance to the deal, finding that head-to-head competition in areas such as supplying the catering sector was now limited.

The group, recognising that Tesco's shops nevertheless compete with Booker-supplied shops, considered the impact of the merger in every local area where a Tesco and a Booker-supplied shop are both present (over 12,000 shops).

They argued that Booker could raise prices to the shops it supplies.

It added that Booker's share of the United Kingdom grocery wholesaling market - at less than 20% - was not large enough to spark longer-term concerns.

The CMA will make its final decision by the end of December.

Critics saw the deal as creating a business that would bring together the Tesco Express convenience-store chain with other United Kingdom c-store retailers like Budgens, Londis and Premier.

In a note to clients, Black wrote: "Congratulations to Dave Lewis, Charles Wilson and their advisors on seeing off the UK Competition & Markets Authority (CMA) and so gaining tacit approval for their merger, which should complete in early 2018, as the management always guided".

But while the CMA's findings remove uncertainty over the deal, he said the focus will now shift on to whether investors will approve the takeover.

"With a higher shareholder hurdle and the Tesco share price below the level of when the bid was made - around £2 - Booker shareholders may argue for a higher share price", he said.

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