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Tesco Takeover

By Patrick Higgins  |  12/07/2017 10:00
Tesco's £3.7 billion deal to acquire wholesale food supplier, Booker, has been referred to the Competition and Markets Authority (CMA) to undergo a full-force investigation.
 
Tesco's potential takeover of Booker was revealed in early January and is one of Tesco's most tactical corporate maneuvers since 2011.  The merger of Tesco (which operates 3,000 stores) and Booker (which supplies 5,000 stores) will result in Tesco's transitioning from one of Britain's largest supermarket retailers to one of its major wholesale suppliers to smaller retailers.  Under the proposed merger, Tesco would gain control over all wholesale stock delivered to 125,000 convenience stores, and 468,000 pubs and restaurants. 
 
The CMA has agreed to expedite the investigation as per requests from Tesco and Booker, from a phase 1 review to a comprehensive phase 2 evaluation. The deal will be reviewed extensively by an inquiry commission, comprising members of the CMA's independent panel.  The commission will evaluate evidence supplied by both Booker and Tesco and analyses potential market implications.  The investigation itself will take up to 24 weeks.  The deal will only be cleared if the commission fails to find convincing evidence that the merger will result in an unfair monopoly.  If competition is reduced, the CMA will request changes or block the merger altogether.  The CMA has said that the company merger will increase the chances of higher supermarket prices in areas where Tesco stores and other Booker-supplied supermarket chains, such as Londis and Family Shopper, overlap.  Furthermore, the CMA is concerned that Booker will be forced to reduce all wholesale deals with rival supermarket chains, to push potential customers towards Tesco.
 
Tesco is seeking to build on its recovered growth.  Since the departure of its long-time successful CEO, Sir Terry Leahy, in 2011, Tesco has been hit with accounting scandals, profit margins in the red and increasing competition from lower-price competitors.  Only under its new leader, Dave Lewis, has Tesco turned a profit for the first time since 2010.  This large-scale proposition is part of Mr Lewis' plan to restore Tesco’s market coverage dominance it previously held.
 
Both Tesco and Booker stocks are in the green today.  Tesco shares are hovering at 172.00, a +0.95 (+0.56%) increase.  Booker shares have risen by +0.60 (+0.32%) to 190.10 today.  All data 9:36 AM BST.
 

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