Tesco merger with Booker gets provisional approval from CMA

The CMA is to prepare a final report on the proposed Tesco Booker merger

Simon Polito, chair of the CMA inquiry group, said: "Millions of people use their local supermarket or convenience store to buy their groceries or essentials".

It concluded that the two did not compete head to head in most areas.

The Times quoted analysts at Bernstein as saying that the CMA's provisional approval was a positive catalyst for Tesco's share price as it reduced uncertainty over this deal.

Shares in Tesco (LON:TSCO) have jumped almost five percent in London this morning, as Britain's competition watchdog cleared provisionally the grocer's tie-up with wholesaler Booker Group (LON:BOK).

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

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".

The proposed deal is Tesco Chief Executive Dave Lewis's boldest move yet.

It examined evidence from Tesco and Booker, which represent the UK's largest retailer and wholesaler respectively, as well as evidence from over 65 wholesalers, suppliers and retail chains, and a survey of hundreds of retailers.

It had earlier raised fears that more than 350 local areas where there is an overlap with Booker-supplied franchises such as Premier, Londis, Budgens and Family Shopper could face "worse terms".

It had raised worries that there could be a potential for Booker to reduce the wholesale services or terms it offers the stores it now supplies, in order to drive customers to their local Tesco.

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

It also found that the deal would allow Booker to negotiate better terms with its suppliers for some of its groceries but that it... This might increase competition in the wholesale market, as well as reducing prices for shoppers.

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

The CMA opened its phase 1 investigation into the merger in May. Tesco now expects the merger to complete early next year.

The CMA will now take more evidence before making a final decision by the end of December.

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

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



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