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Tesco to buy Budgens and Londis owner Booker in £3.7bn deal Tesco to buy Budgens and Londis owner Booker in £3.7bn deal
(about 3 hours later)
Tesco, Britain’s biggest supermarket group, is to buy Booker, the UK’s largest food wholesaler and the owner of Londis and Budgens, in a £3.7bn deal. Tesco, Britain’s biggest supermarket group, is to buy Booker, the UK’s largest food wholesaler and the company behind Londis and Budgens, in a £3.7bn deal.
The supermarket giant has unveiled an agreed share and cash merger that values Booker at £3.7bn, “to create the UK’s leading food business”. The two companies claimed that the combined group will “bring benefits for consumers, independent retailers, caterers, small businesses, suppliers, and colleagues, as well as delivering significant value to shareholders”. The two companies said they wanted to create the UK’s leading food business in a £195bn market, claiming that it would “bring benefits for consumers, independent retailers, caterers, small businesses, suppliers, and colleagues, as well as delivering significant value to shareholders”.
Tesco chief executive Dave Lewis said: “Tesco has made significant progress in turning around our UK retail business. 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. Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available.” But the deal will raise questions over its impact on the UK’s grocery sector and is likely to be scrutinised closely by competition authorities. Tesco owns the 850-strong One Stop convenience store chain while Booker acquired the Londis and Budgens chains in 2015, which are operated by franchisees but are supplied by Booker.
Under the terms of the deal, each Booker shareholder will receive 0.861 Tesco shares and 42.6p in cash. Nor was the tie-up completely unanimous among the Tesco board. The supermarket group’s chief executive Dave Lewis admitted that Richard Cousins, boss of catering group Compass who abruptly quit his position as senior independent director of Tesco earlier this month, was not supportive of the Booker deal, which took a year to negotiate. Lewis said he respected Cousins’ decision and described their discussions as “good governance” but stressed that the rest of the Tesco board backed the deal.
Booker shareholders will own 16% of the combined business. Tesco shares jumped 10% to 208p on the news, while Booker shares leapt 15% to 211p.
The deal has been unanimously recommended by both boards, but needs approval from regulators and both sets of shareholders. Booker’s chief executive Charles Wilson and its chairman Stewart Gilliland will join the combined group’s board. Lewis told BBC Radio 4 that the deal was a “low-risk merger”, adding: “Tesco and Booker are quite different businesses we but we have a lot in common – a focus on food.”
Analysts believe the deal could run into competition problems. Retail specialist Nick Bubb said: “Our instant reaction is that the Competition and Markets Authority will have a field day with this, as although Tesco is mainly a retailer in the UK and Booker a wholesaler, Tesco does own the One Stop convenience store chain that competes with Booker’s interest in symbol groups and convenience store retailing (via Premier and Londis etc), so it is by no means clear that the CMA will allow things to proceed very far without having a good look at the overlap.” He insisted it was the right time for the deal: “We do think that the recovery in Tesco is well under way ... It’s completely on strategy, it’s the next evolution of our strategy.”
Booker owns thousands of convenience stores under the Londis, Budgens, Premier and Family Shopper brands, and supplies food to 450,000 caterers, 120,000 retailers and 700,000 small businesses including Wagamama, Rick Stein and Carluccios. Since taking the reins in 2014, Lewis has been reshaping Tesco following a damaging accounting scandal and a slump in sales. A strong Christmas performance has raised hopes of better-than-expected annual profits.
Tesco expects synergies from the deal to reach at least £200m a year by the third year after completion , with a boost of at least £25m to operating profit and cost savings of at least £175m. Booker’s chief executive Charles Wilson will join the combined group’s board and act as a number two to Lewis, similar to his role as right hand man to Stuart Rose at Marks & Spencer over a decade ago. Booker’s chairman Stewart Gilliland will also join the new board. Wilson owns nearly 6.3% of Booker and is swapping his holding for Tesco stock with a five-year lock-in.
Lewis said the deal was about improving price, choice and service for customers and would cut food waste.
Pointing to online retailer Amazon, which is pushing into food, Wilson chimed in: “If you look around the world, you see that the food industry is changing.”
Tesco and Booker expect synergies from the deal to reach at least £200m a year by the third year after completion, with a boost of at least £25m to operating profit and cost savings of at least £175m.
Wilson ruled out large-scale job losses, arguing that the savings will come from greater efficiency and procurement. He was confident that Booker’s convenience store brand names Londis, Budgens, Premier and Family Shopper would remain.
Under the terms of the deal, each Booker shareholder will receive 0.861 Tesco shares and 42.6p in cash, worth 205.3p a share. Booker shareholders will own 16% of the combined business.
The deal has been recommended by both boards, but needs approval from regulators and both sets of shareholders.
Retail analysts at Shore Capital said: “The initial gut reaction, which is usually the best one, is that it may be sound for Tesco but far from compelling for Booker shareholders.” But they cautioned: “Tesco is not a business without a lot to do fixing the UK stores, trying to make online sustainably profitable, rebuilding profitability in central Europe and generally de-leveraging. As such, whether or not the integration of Booker is an ideal strategic step is subject to debate to our minds.”
Analysts believe the deal could run into competition problems, but Lewis was not concerned, pointing to Booker’s franchise model, whereby stores are owned independently by the retailer.
Retail specialist Nick Bubb said: “Our instant reaction is that the Competition and Markets Authority will have a field day with this, as although Tesco is mainly a retailer in the UK and Booker a wholesaler, Tesco does own the One Stop convenience store chain that competes with Booker’s interest in symbol groups and convenience store retailing (via Premier and Londis etc), so it is by no means clear that the CMA will allow things to proceed very far without having a good look at the overlap.”
Shore Capital concurred, adding: “The non-Booker independent and wholesale trade will be up in arms on this proposed merger and so it could be a very messy process.”
Booker supplies food to 450,000 caterers, 120,000 retailers and 700,000 small businesses including Wagamama, Rick Stein and Carluccio’s.