Tesco to buy Booker for $4.6 billion

LONDON: Britain’s biggest supermarket Tesco has agreed to buy leading wholesaler Booker for £3.7 billion ($4.64 billion), reasserting its dominance with a bold move into the faster-growing restaurant and pubs market.
Tesco’s takeover of Booker signifies the supermarket chain’s growing confidence after two years of turmoil. The group also said on Friday it would restart paying dividends in respect of the financial year 2017/18.
Chief Executive Dave Lewis’s focus has been on reviving Tesco’s main grocery business in Britain, and in a joint statement with Booker it said on Friday that together the pair would be able to address more of Britain’s growing food market.
“The Tesco of old is back,” said John Ibbotson of Retail Vision. “This is an extremely bold move and demonstrates an intent and sense of purpose that have been missing for the best part of a decade.”
By adding Booker, Tesco will gain exposure to supplying Britain’s cafe, restaurant and pub market, which is growing faster than the eat at home market served by its shops. Booker supplies 450,000 catering outlets including chains such as Wagamamas and Carluccio’s.
“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,” Lewis said in a statement.
Shares in Tesco traded up 7.7 per cent at 203.6 pence, and Booker had risen 12 per cent to 205 pence at 0806 GMT. The deal sees Lewis, who took the helm at Tesco in 2014 when the firm was in a state of crisis and losing market share rapidly, switch to acquisition mode from his strategy of streamlining the sprawling international business.
Over the last two years he has sold Tesco’s South Korean arm for $6.1 billion, as well as its Turkish business and the Giraffe restaurant chain.
BOLD STEP: The pair said the deal would lead to synergies of at least £200 million within three years and that it would be accretive to earnings per share in the second full financial year of the deal.
One analyst said, however, that the deal could face hurdles from the competition regulator.
“Our instant reaction is that the Competition and Markets Authority will have a field day with this,” said independent retail analyst Nick Bubb.
But Lewis told BBC radio that he disagreed.
“This is not a case of Tesco buying any more stores. We actually don’t see there to be an issue in terms of competition,” he said earlier on Friday.
Under the terms of the deal each Booker shareholder will receive 0.861 new Tesco shares and 42.6 pence in cash.
Based on Tesco’s closing share price on Thursday of 189 pence the deal represents a value of 205.3 pence per Booker share — a premium of about 12 per cent on its Thursday close.
The deal will result in Booker shareholders owning approximately 16 per cent of the combined group. — Reuters