Tesco wins UK regulator's provisional approval for Booker takeover

European Stock Markets

Tesco (TSCO.L) won provisional approval for its 3.7 billion pound ($4.9 billion) takeover of wholesaler Booker (BOK.L) from the UK competition regulator on Tuesday, moving Britain’s biggest retailer closer to securing a new avenue of growth. 

The Competition and Markets Authority (CMA) said it had conducted an in-depth review and provisionally concluded that Tesco’s purchase of Booker does not raise competition concerns.

The provisional unconditional clearance will come as a major relief to Tesco. Most analysts had expected that Tesco would have to agree store disposals to gain clearance.

Both Tesco and Booker, the country’s biggest grocery wholesaler, welcomed the CMA announcement. Tesco said it expected to complete the deal, which also requires shareholder approvals, in early 2018.

Shares in Tesco and Booker were up 4.8 percent and 5.1 percent respectively at 0905 GMT.

Bernstein analysts said they expect some uncertainty to remain, with the focus shifting to whether investors will approve the deal.

Their analysis indicates that Tesco will achieve the required 50 percent shareholder approval and that the focus will be on Booker, where the threshold is 75 percent.

“With a higher shareholder hurdle and the Tesco share price below the level when the bid was made (about 2 pounds), Booker shareholders may argue for a higher share price,” the broker’s analysts said.

For each Booker share, Tesco is offering 0.861 new Tesco shares and 42.6 pence in cash.

The CMA said it found that Tesco as a retailer and Booker as a wholesaler supplying caterers and independent retailers Premier, Londis, Budgens and Family Shopper do not compete head-to-head in most of their activities.

In particular, it found that Tesco does not supply the catering sector that accounts for more than 30 percent of Booker’s sales.

The proposed deal is Tesco Chief Executive Dave Lewis’s boldest move yet. He believes it will provide a new source of growth by giving the group access to the fast-growing “out of home” food market, given Booker’s role as a distributor to the catering industry.

Some Tesco shareholders have criticized the bid, saying Tesco is overpaying and that it will distract from the company’s turnaround plan.

Rival wholesale groups have also called for the takeover to be blocked.