Tesco/Booker merger given provisional green light


The CMA said the competitive landscape looked generally rosy because Booker had less than a 20% share of the United Kingdom grocery wholesaling market.

It added that Booker's share of the United Kingdom grocery wholesaling market - at less than 20% - was not large enough to spark longer-term concerns.

Tesco and Booker stunned the market in January when they announced their plans to join forces.

However, the planned merger sparked fierce debate throughout the industry about what it could mean for competition.

Tesco responded: "We look forward to creating the UK's leading food business, bringing together our combined expertise in retail and wholesale".

While 50% of Tesco investors must give the deal the green light, the threshold is 75% for Booker shareholders.

Earlier fears during the investigation were that there is an overlap with Booker-supplied franchises such as Premier, Londis and Budgens. The CMA has denied this could happen, believing that retailers would change symbol groups or seek new suppliers if prices increased.

The CMA said Tesco and Booker do not compete "head-to-head" in most areas in which they operate.

"My only concern would be for local suppliers that supply Bookers, will Tesco dictate what price they are willing to pay for their goods and squeeze their margins even more", says Patel.

A number of competing wholesalers expressed concern that Booker would benefit from improved suppliers' terms after the merger, making it hard for them to continue to compete.

But on announcing its provisional findings, the CMA said Booker would be able to negotiate better terms from its suppliers for some of its groceries, and that it was likely to pass on these savings to the shops it supplies. The regulator asserted the United Kingdom wholesale market would "remain competitive in the longer term", noting Booker's share of the United Kingdom grocery wholesaling market - at less than 20% - was "not sufficient to justify the longer-term concerns".

Retail analyst Bruno Monteyne at Bernstein said the tie-up would make Tesco "not only the biggest grocer in the United Kingdom but also one of the fastest growing food retailers in the United Kingdom for many years to come". That at least seems to be the weird message from the competition watchdog, on Tuesday rebranded as the "comedy markets authority" by wags at Shore Capital.

When Tesco set out its rationale for the merger earlier this year, the company said: "Optimising a joint national distribution system of Tesco and Booker is expected to lead to material benefits, including sharing parts of the fleet and expanding click and collect services".

"As for the rest of the United Kingdom food system, well colourful language and dismay nay apoplexy are probably understatements". If Tesco and Booker can merge with unconditional approval (with no proposed remedies), then the scope for further large-scale consolidation cannot be ruled out.