Tesco gets green light for £3.7bn Booker takeover

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Tesco gets green light for £3.7bn Booker takeover

Tesco's £3.7bn takeover of food wholesaler Booker has been provisionally cleared by the UK's competition regulator. It also owns convenience store chains Budgens, Londis and Premier, as well as trade-facing Makro and Booker Wholesale.

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

But the CMA said it was clear the two firms did not now compete head-to-head in most of their activities - such as supplying the catering sector, which accounts for 30% of Booker's business.

A group of independent panel members has investigated how bringing together the UK's largest grocery retailer and its largest grocery wholesaler would affect competition.

A number of competing wholesalers expressed concern that Booker would benefit from improved suppliers' terms after the merger, making it hard for them to continue to compete.

"With a higher shareholder hurdle and the Tesco share price below the level when the bid was made [about £2], Booker shareholders may argue for a higher share price", the broker's analysts said.

The CMA found that it was likely Booker would be able to negotiate better terms from a number of its suppliers for some of its groceries, and that it was likely to pass on some of the benefits of these savings to the shops that it supplies.

It added: "This might increase com petition in the wholesale market, as well as reduce prices for shoppers". "Tesco will be hoping that its sheer size and buying power will help it fend off others in the sector and restore it as the nation's favourite supermarket", said analyst Graham Spooner at stockbroker The Share Centre.

The CMA said the competitive landscape looked generally rosy because Booker had less than a 20% share of the United Kingdom grocery wholesaling market. Strong competition in the market ensures that shoppers can choose the best deal for them.

The initial findings of a four-month phase two investigation came as a relief to the two companies, which industry experts had expected would be forced to make concessions such as store disposals or operational restrictions, and prompted a rally in their share prices.

In a surprise ruling, the Competition and Markets Authority said that plans to combine Britain's biggest grocery retailer and the country's leading wholesaler would not trigger higher prices or weaker service.

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

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