Shareholders of Tesco and Booker have backed their boards and voted in favour of merging the two businesses.

 

Resounding 'yes' vote from both sets of shareholders

85% of Tesco shareholders and 83% of Booker shareholders backed the £3.7bn merger which is now expected to be completed on March 5th. The merger will form a vertically-integrated business, with annual UK sales of £47bn (£42bn for Tesco and £5bn for Booker).

 

Platform for growth

The merger will extend Tesco's reach into the fast-growing foodservice sector as well as broaden its participation in the convenience channel. Both are attractive opportunities for the UK's largest retailer as it looks for new ways to offset the long-term challenge from declining shopper footfall to larger stores. Booker's sales to caterers amount to over £1.7bn annually, supporting nearly 5,500 convenience stores under the Premier, Londis, Budgens and Family Shopper brands.

 

Merger opportunities already being developed

The result follows just a week after Booker opened its first Chef Central unit at Tesco's Bar Hill Extra store in Cambridge, aimed at professional caterers. The merger could pave the way for a number of other similar openings to drive incremental sales from under used space, if the trial proves successful. Other benefits expected from the combined group were outlined here.

 

Charles Wilson to stay with merged business

Upon completion of the merger, Booker CEO Charles Wilson will become the CEO of Tesco's UK and Ireland division (covering both retail and wholesale).

 

You can find out more about the exciting trading plans for the new combined business at the IGD Tesco Business Update, on 23^rd May in London.

The financial prospectus was published yesterday for potential investors in the combined Tesco / Booker business. In amongst the 368 pages of financial tables, legal statements and directors’ bonuses, there are some interesting pieces of “forward guidance” for the merged group.

For those of us with a supply chain perspective, the stand-out items are as follows:

• Widening the “click and collect” network: the new merged group will be able to expand grocery and non-grocery pick-up services into over 5,000 retail outlets. They also flagged the opportunity from over 440,000 catering outlets supplied by Booker (including pubs and restaurants). This could generate more customer visits to those locations, as well as being a more convenient service for Tesco customers.
• Sharing the delivery fleet: the extensive Tesco and Booker delivery network will be optimised over time to make best use of all vehicles, large and small. This should improve service and create environmental benefit as well as saving money. There are many opportunities, for example using Booker vans to service Tesco home deliveries or creating additional backhaul routes for Tesco’s Primary transport.
• Impact of the P&H collapse: “The recent failure of Palmer & Harvey, a national distributor that worked with Tesco, has caused a reassessment of plans for the distribution networks of both businesses and how they will be best brought together. This assessment is underway and will be completed after the Merger.”

The UK Competition and Markets Authority (CMA) has published its final findings on the potential competition effects of the merger between Tesco and Booker, the UK's largest grocery retailer and the UK's largest grocery wholesaler respectively. Reiterating the findings of the provisional report in November, this report gives the formal go-ahead for the deal, which will create a business with joint sales over £61bn. Following submission to shareholder approval in February, it is expected the deal will complete in March 2018.

No remedies required

Following the conclusions reached in the provisional report the CMA has not identified any disposals, of other actions from the parties necessary to progress the tie-up. In its analysis the CMA points to the 'vertical' nature of the relationship between Tesco and Booker, reasoning that being retailer and wholesaler respectively, "there is very little direct head-to-head competition between them", and suggests that rather than damaging competition these sorts of mergers even "may lead to efficiencies which may result in benefits to customers."

Collapse of P&H requires no change to decision

Following the fall of, Booker competitor, Palmer & Harvey into administration on 28 November (after the publication of the provisional findings) the CMA has considered what this has meant for the inquiry, and for competition at the wholesale level. It has concluded that as significant alternative options of alternative supply remain to all P&H's former customers, the impact of the collapse on the wholesale market is not sufficient to require the reconsideration of its provisional decision on the merger.

Simon Polito, Chairman, CMA inquiry group said:

"We have carefully listened to feedback from retailers and wholesalers who operate in what are highly competitive UK retail and wholesale sectors. Retailers have told us that they shop around for the best prices and service from their wholesaler, and we are confident this will continue after Tesco buys Booker."