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

Tesco's £3.7 billion takeover of wholesale giant Booker has been provisionally cleared after the Competition and Markets Authority said it does not raise competition concerns

SUPERMARKET giant Tesco's £3.7 billion deal to buy wholesale group Booker has been provisionally cleared by the competition watchdog.

The Competition and Markets Authority (CMA) said its in-depth investigation into the tie-up found it did not raise competition concerns despite fears raised by a raft of rival wholesalers.

The CMA said Tesco and Booker do not compete "head-to-head" in most areas in which they operate.

"In particular, Tesco does not supply the catering sector to which Booker makes over 30 per cent of its sales," the CMA said.

It comes despite the CMA having earlier raised fears over 350 local areas of overlap between Tesco and Booker where it feared the deal could lead to "worse terms".

Simon Polito, chair of the CMA's inquiry group, said: "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 for supermarket and convenience shoppers."

The CMA's findings are surprising given its previous concerns over the deal, which was first announced in January.

Booker is the country's largest wholesaler and owns Londis and Budgens as franchised outlets, and the CMA has previously said it was worried that shoppers could face worse terms when buying their groceries as a result of the deal.

A raft of rival wholesalers have also raised concerns the deal could see Booker benefit from improved supplier terms making it difficult for them to compete, according to the CMA.

It said they argued that Booker could raise prices to the shops it supplies.

But on announcing its provisional findings, the CMA said Booker would be able to negotiate better terms from its suppliers for some of its groceries, and that it was likely to pass on these savings to the shops it supplies.

"This might increase competition in the wholesale market, as well as reducing prices for shoppers," the CMA said.

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

The CMA began its investigation in May and launched an in-depth probe in July after Tesco and Booker asked for the inquiry to be fast-tracked.

The regulator is due to report its final findings in December.

Retail analyst Bruno Monteyne at Bernstein said the tie-up would make Tesco "not only the biggest grocer in the UK but also one of the fastest growing food retailers in the UK for many years to come".

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.

While 50 per cent of Tesco investors must give the deal the green light, the threshold is 75 per cent for Booker shareholders.

Mr Monteyne said: "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."

Tesco's shares rose 3 per cent after the CMA's provisional findings.

Tesco said: "Tesco welcomes the announcement from the Competition and Markets Authority that it has given provisional unconditional clearance of our merger with Booker Group.

"We look forward to creating the UK's leading food business, bringing together our combined expertise in retail and wholesale.

"This merger has always been about growth, and will bring benefits for independent retailers, caterers, small businesses, suppliers, consumers and colleagues.

"We will continue to work with the CMA as it prepares the final report due by the end of December.

"We anticipate completion of the merger in early 2018."

Shares in FTSE 250-listed Booker leapt 5 per cent higher.

Booker said: "We are pleased that the CMA has provisionally concluded that this transaction does not lessen competition, and will continue to work with the CMA ahead of its publication of a final decision, expected in December.

"We are grateful for the support of customers, suppliers and colleagues during this process."

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