The UK’s biggest supermarket group, Tesco, has agreed to buy the UK’s biggest food wholesaler, Booker Group, in a £3.7bn deal.
The firms said the deal would create the “UK’s leading food business”.
Booker Group is the UK’s largest cash and carry operator, and supplies everything from baked beans to teabags to 700,000 convenience stores, grocers, pubs and restaurants.
Booker also owns the Premier, Budgens and Londis convenience-store brands.
By combining with Booker Group, Tesco is expanding beyond its traditional food retailing business and making strides into the restaurant and takeaway food sectors.
“Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available,” said Tesco chief executive Dave Lewis.
Mr Lewis said rising prices from suppliers had played no part in the decision to sign the deal.
Speaking to the BBC’s Today programme, Mr Lewis said he believed the transaction would not face a challenge from competition authorities, as it would not result in Tesco owning any more stores, and he dubbed it a “low risk” merger.
But others were not so sure. One UK supermarket executive told the BBC the Competition and Markets Authority (CMA) “may not like the idea of one company’s products in so many convenience stores”.
Satyen Dhana, a competition partner with law firm CMS said the CMA will look “very carefully” at the deal.
“Whilst Tesco and Booker do operate in largely different segments, the CMA is likely to examine where the parties overlap and if the enhanced new business becomes a must-have trading partner for customers and suppliers.
“Tesco may not be owning any more stores, but potentially it becomes a key supplier to a large number of independent convenience stores that may compete at the local level with its own stores.
“Suppliers of goods to Tesco and Booker may also want the CMA to consider if the transaction now combines two of their largest customers,” Mr Dhana added.
A spokesman for the CMA said: “We do not comment on potential investigations.”
James Lowman, chief executive of the Association of Convenience Stores said the merger is “hugely significant”.
“Some retailers will welcome this news, others will be concerned about competing with stores supplied through the merged Booker and Tesco business, and some will be uneasy at the prospect of working in partnership with one of their biggest historical competitors.”
New strategies
Investors welcomed the surprise announcement, sending Tesco’s shares up 10% in morning trade.
Under the terms of the cash and shares deal, Booker shareholders will end up owning about 16% of the combined group.
“The deal with Booker shows Tesco is not going to sit on its hands and wait for its dominant market position to slowly leak away to competitors,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.
“The UK’s supermarkets are engaged in new strategies to cope with the brave new world, where the discounters have stolen market share and consumers have turned away from big superstores, preferring instead to do their shopping in convenience stores or on their mobile phones.
“Sainsbury bought Argos, Morrisons is flirting with Amazon, and now Tesco has revealed its plans to drive further growth.”
[Source:- BBC]
