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Tesco wins UK regulator's provisional approval for Booker takeover

Reuters  |  LONDON 

By James Davey

(Reuters) - won provisional approval for its 3.7 billion pound ($4.9 billion) takeover of wholesaler from the competition regulator on Tuesday, moving Britain's biggest retailer closer to securing 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 does not raise competition concerns.

Tesco's move on in January sparked further consolidation in Britain's 185 billion pound grocery market as supermarkets seek additional sources of growth.

Analysts expect more M&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 different universe," said Shore Capital analyst Clive Black.

"If and can merge with unconditional approval, then the scope for further large-scale consolidation cannot be ruled out," he said.

The provisional clearance will come as big relief to Most analysts had expected it would have to agree to store divestments or restrictions on operations to gain clearance.

and have argued their deal will enhance competition in and promote consumer interests. However, rival wholesalers, including Bestway, Spar, Bidfood and Sugro, reject that and have called for the deal to be blocked.


They believe if the deal proceeds will have an unshakeable grip on the procurement of all grocery categories in and that suppliers will find it even harder to resist Tesco's demands.

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

Shares in and were both up 7 percent at 1422 GMT.

Rival grocers declined to comment on the record. But 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 bid for the Nisa convenience chain before the Co-operative Group secured 138 million pound deal. Morrisons, the No. 4, has signed wholesale supply deal with the McColl's chain.

Some shareholders have criticised the bid, saying Chief Executive Dave Lewis is overpaying and that it will distract from the company's turnaround plan.


The approval could spur calls from shareholders for to raise its bid.

One top 20 investor said he believed should pay more "as is Tesco's last hope". He said the investor would reiterate to that it could extract 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 will achieve the required 50 percent shareholder approval and that the focus will be on Booker, where the threshold is 75 percent.

"With higher shareholder hurdle and the share price below the level when the bid was made, shareholders may argue for higher share price," the broker's analysts said.

The deal is Lewis's boldest move yet, giving access to the faster growing "out of home" food market.

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

The CMA said it found that as retailer and as 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 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 and will not lead to higher prices or 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)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Tue, November 14 2017. 20:11 IST