Tesco to merge with Britain’s largest wholesaler in deal worth £3.7 bn

Britain’s largest supermarket Tesco (LON:TSCO) is to buy the country’s largest wholesaler, Booker (LON:BOK), in a landmark deal worth £3.7 billion.

The cash and share merger was announced on Friday, and will create a combined group “able to provide greater choice, quality, price and service in the food market, whilst improving efficiency and reducing food waste”.

Booker owns the Londis and Budgens chains and supplies wholesale food to 450,000 caterers, 120,000 retailers and 700,000 small businesses including Wagamama, Rick Stein and Carluccios. Charles Wilson, Booker’s Chief Executive Officer, said of the deal:

“Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve. We believe that joining forces with Tesco offers the potential to bring major benefits to end consumers, our customers, suppliers, colleagues and shareholders.”

However, some analysts believe the deal could be rife with competition problems. Retail specialist Nick Bubb told the Guardian:

“Our instant reaction is that the Competition and Markets Authority will have a field day with this, as although Tesco is mainly a retailer in the UK and Booker a wholesaler, Tesco does own the One Stop convenience store chain that competes with Booker’s interest in symbol groups and convenience store retailing (via Premier and Londis etc), so it is by no means clear that the CMA will allow things to proceed very far without having a good look at the overlap.”

The deal expected to complete later this year or early in 2018, with the companies expecting to make cost savings of £175 million a year following the merger. Dave Lewis, Chief Executive Officer of Tesco commented:

“Tesco has made significant progress in turning around our UK retail business. This Merger with Booker will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital. Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available.”

Tesco shares are currently up 9.02 percent at 205.85, with Booker shares up 15.95 percent at 212.20 (1003GMT).