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Tesco wins shock approval for £3.7bn Booker deal

Ashley Armstrong
The CMA said Tesco's takeover of Booker 'does not raise competition concerns'

The UK’s competition watchdog on Tuesday stunned the food industry by giving approval to Tesco’s £3.7bn takeover of wholesaler Booker without requiring any shop disposals.

An investigation into the deal, which was originally announced in January, by the Competition and Markets Authority found the combination of Britain’s biggest retailer and Booker, owner of the Londis and Budgens convenience brands, would not result in higher prices or a poorer service for shoppers.

Simon Polito, chairman of the CMA’s inquiry group, said the investigation found that “existing competition is sufficiently strong in both the wholesale and retail grocery sectors”.

Clive Black, analyst at Shore Capital, said the decision showed the CMA “seemingly lives in a different universe to anything that may be considered a normal view of the world”. The CMA will release its final decision by Boxing Day, but competition lawyers commented that the agency rarely reverses its provisional findings.

The move has sparked outrage from rival wholesalers who have argued the combination will threaten the survival of independent shopkeepers. John Mills, managing director of Landmark Wholesale, said: “As a result of this decision Tesco, who currently account for £1 in every £8 on the high street, will dominate the convenience and corner shop market and will undoubtedly now dominate the food service and out-of-home market as well.

Tesco buy Booker graphic

“We believe that there is a risk that thousands of jobs will disappear from family-run food service wholesalers and independent stores and the net impact will reduce choice for consumers and communities, a point that seems to have been totally lost to the CMA.”

Meanwhile, a spokesman for the National Farmers Union said that some farmers would be welcoming the deal as it would mean that Booker would now be regulated by the Groceries Code Adjudicator, which could spell an improvement of buying terms with the wholesaler.

The CMA’s provisional decision has fuelled speculation that Booker investors could demand a higher price from Tesco, given that the supermarket’s shares have fallen since the deal was announced.

Analysts at HSBC believe that Tesco could squeeze £500m worth of synergies from the deal, compared to the £200m the two parties had estimated, meaning the supermarket could afford a sweetener.

Tesco still needs approval from the majority of its own shareholders and support from 75pc of Booker investors to close the deal.

But sources said it was unlikely that Tesco would want to bump its offer as it has already faced opposition from two of its largest shareholders, Artisan and Schroders, who have argued the Booker deal risks distracting management from the recovery of its core UK business.

The takeover moves Tesco into uncharted territory as it inherits Booker’s catering business, which supplies pubs, hotels and restaurants.

Tesco operates more than 3,000 shops in the UK while Booker supplies more than 5,000 stores in franchisee relationships.