Tesco’s £3.7 billion Booker tie-up provisionally cleared
The CMA said its in-depth investigation has provisionally found the tie-up does not raise competition concerns despite fears raised by rival wholesalers.
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% 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% – 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% of Tesco investors must give the deal the green light, the threshold is 75% 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.”