Tesco go-ahead for Booker on price cuts hopes

Tesco’s £3.7 billion takeover of cash-and-carry chain Booker on Tuesday received the green light as the competition watchdog said the deal could bring down soaring food prices.

The Competition and Markets Authority argued that the merger could lead to a more crowded wholesale market, thus cutting prices for shoppers.

“Millions of people use their local supermarket or convenience store to buy their groceries,” said Simon Polito, chairman of the inquiry group. “Strong competition in the market ensures that shoppers can choose the best deal for them.”

The investigation into the deal concluded that Tesco and Booker, which also owns the Premier, Budgens and Londis stores, did not compete head-to-head in most of their activities.

However, many in the market believe if the tie-up goes ahead, it could hurt convenience retailers.

The CMA said it had considered the impact of the merger in every local area where there is a Tesco and a Booker-supplied shop — more than 12,000 stores — to see if the pairing would raise prices. But it found that there is enough competition to offset such a move.

Tesco’s shares rose 5.2% to 186p while Booker’s leapt 5.1% to 209p.

The deal could turn Tesco into a major supplier to small retailers, serving 125,000 independent convenience stores as well as 468,000 restaurants and pubs. The supermarkets giant revealed its bid for Booker in January, sparking a wave of consolidation in the industry, including Morrisons’ tie-up with convenience stores chain McColl’s as well as the Co-op, which yesterday clinched the £143 million takeover of Nisa after its members narrowly agreed to back it.

“It probably is a good time for some consolidation,” said ETX’s Neil Wilson. “The supermarket sector is hugely competitive and store deflation is hitting margins.”

AJ Bell’s Russ Mould said: “But even assuming that the transaction goes through on the nod, both companies must now satisfy investors that the deal creates long-term value [and not] long-term trouble for shareholders.”

A final decision from the CMA is expected by the end of December.