BY Richard Summerfield
British supermarket chain Tesco PLC has announced that it is to acquire food wholesaler Booker Group plc in a deal worth around £3.7bn.
Under the terms of the merger, Booker shareholders will receive 0.861 new Tesco shares and 42.6 pence in cash for each Booker share held. Based on Tesco's closing share price of 189 pence on Thursday 26 January, the day before the deal was announced, the deal represents a value of 205.3 pence per Booker share – a premium of about 12 percent.
Booker stakeholders will control around 16 percent of the newly merged company once the deal has been completed. The companies believe that the merger will create synergies of at least £200m in the first three years. Though implementation costs could be around £145m, the savings will likely come from procurement, distribution and central functions. The deal will boost earnings per share in the second full year of the deal, the companies said in a statement.
Booker, a cash and carry wholesaler which supplies food to 120,000 independent retailers nationwide, as well as owning the Londis, Budgens and Premier brands, will provide Tesco with an entrance into the food service industry. Booker also supplies a number of high-street restaurant chains and pubs.
The deal and subsequent transition into the catering sector is the latest step in Tesco’s remarkable turnaround. Just two years ago Tesco was in the midst of an accounting scandal and experiencing a declining share of the UK’s grocery market. Today, however, the company is on a much firmer footing.
Dave Lewis, Tesco’s chief executive said: “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.”
Charles Wilson, chief executive of Booker, said: “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.”
Tesco has heralded the advantages of the deal, claiming that the tie-up will grant suppliers access to additional customers. The firm also believes that independent retailers will be given more choice. Tesco will gain exposure to around 120,000 independent retailers, 107,000 small businesses and 450,000 caterers by absorbing Booker.
But given the size and scale of the new company, there is an expectation that the UK Competition and Markets Authority will place the deal under intense scrutiny. The takeover, should it go ahead, would create the UK’s biggest wholesale and retail food business, with combined annual sales of more than £60bn. Tesco currently enjoys a 28 percent share of the UK grocery market.