Tesco-Booker

The proposed merger between Tesco and Booker is expected to deliver cost savings of £200 million a year and has been described as a “game changer” by at least one retail analyst.  In the last few days, the merger has not escaped speculation that divestiture remedies might be needed to placate competition concerns.

The parties have claimed that the transaction will enhance the merged entity’s buyer power which should mean cheaper prices for Booker’s retail customers including Premier, Budgens, Londis and Family Shopper.  The transaction has met with opposition by independent retailers and the wholesale sector, based on concerns around foreclosure because they will get less favourable deals than the merged group.  Tesco shareholders have also raised objections believing that the deal is a distraction from key business turnaround.

Competition concerns arising in mergers in the grocery sector are typically dealt with through divestitures of overlapping stores to reduce concentration in local markets affected by the merger.  However, because Booker operates a franchise business model so will not be adding any new ‘stores’ as such to an existing portfolio, disposals would most obviously have to come from the Tesco estate.  How Tesco Express sits within the merged group and its complementarity with Booker’s symbol fascias will no doubt be revealed as the detail of the merged group’s plans comes to light. 

The Competition and Markets Authority (CMA) is likely to focus its competition scrutiny on the extent to which Booker has pricing influence over the stores in its network which would require it to look through the franchise model.

The parties aim to complete the merger by the end of 2017 or early 2018.  A full Phase 2 investigation by the CMA could add a further 6-8 months to the overall review timetable