Tesco is acquiring the UK’s largest food wholesaler operator, Booker Group, in a £3.7bn deal set to expand the retailer’s exposure in the catering sector and create the country’s “leading food business”.
Booker Group offers branded and private-label goods more than 400,000 customers, including pubs, grocers, independent convenience stores, and restaurants. Booker owns the Londis, Budgens and Premier convenience-store brands.
Tesco expects to generate an extra £200 million in annual profit from the deal within three years.
Commenting on the announcement, Dave Lewis, Chief Executive Officer of Tesco said:
“Tesco has made significant progress in turning around our UK retail business. This Merger with Booker will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital. 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.”
Under the terms of the merger, each Booker shareholder will receive 0.861 New Tesco Shares and 42.6 pence in cash for each share they currently own.
The terms of the merger represent a value of approximately 205.3 pence per Booker Share; a value of approximately £3.7 billion for Booker’s ordinary share capital – a premium of approximately 12% to the closing price of 183.1 pence per Booker Share on 26 January 2017. Ordinary shareholders receive dividends, depending on profit levels, and have voting rights at AGMs.
Charles Wilson, Chief Executive Officer of Booker, said:
“Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve. We believe that joining forces with Tesco offers the potential to bring major benefits to end consumers, our customers, suppliers,
colleagues and shareholders.”
The deal could face regulatory scrutiny
According to Reuters, analysts believe the deal could face regulatory scrutiny over the impact it could have on consumers at smaller convenience stores and food industry supplies.
Speaking on BBC’s Today programme, David Lewis said he doesn’t expect the deal to be challenged by competition authorities as Tesco won’t own any new stores as a result of what he called a “low risk” merger.
However, one supermarket executive told the BBC that the Competition and Markets Authority (CMA) “may not like the idea of one company’s products in so many convenience stores”.
David Lewis, was quoted by The Telegraph as saying:
“Obviously we did our own due diligence on potential competition issues.
“It’s very important that we understand the difference between a retail operation and a wholesale operation. The customers that Booker serves are independent entrepreneurs that own their own business, that have a contract with Booker, and have absolute free opportunity to engage in the marketplace.”