By James Davey
LONDON (Reuters) - Tesco won provisional approval for its 3.7 billion pound ($4.9 billion) takeover of wholesaler Booker 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.
Tesco's move on Booker in January sparked further consolidation in Britain's 185 billion pound grocery market as supermarkets seek additional sources of growth.
Analysts expect more M&A activity as supermarkets seek to utilise excess capacity within their supply chains.
"The wholesale trade in particular will be wondering why on earth it ever bothered engaging at all with the CMA, an organisation that seemingly lives in a different universe," said Shore Capital analyst Clive Black.
Tesco and Booker have argued their deal will enhance competition in Britain and promote consumer interests. However, rival wholesalers, including Bestway, Spar, Bidfood and Sugro, reject that and have called for the deal to be blocked.
Rival grocers declined to comment on the record. But a source at one grocer described the CMA's decision as "ridiculous".
Though it is unusual for provisional findings to be reversed, rival wholesale and retail groups do have the chance to present further evidence and comment before the CMA's final ruling due in December.
In consolidation moves already prompted by the deal, Sainsbury's, Britain's No. 2 supermarket group, considered a bid for the Nisa convenience chain before the Co-operative Group secured a 138 million pound deal. Morrisons, the No. 4, has signed a wholesale supply deal with the McColl's chain.
CALLS FOR HIGHER PRICE?
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.
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.
"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," said Simon Polito, chair of the CMA's inquiry group. ($1 = 0.7631 pounds)
(Additional reporting by Ben Martin; Editing by David Goodman and Adrian Croft)
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