Published: Tue, November 14, 2017
Finance | By Claude Patterson

Tesco share price soars as tie-up with Booker gets green light

The CMA said Booker's share of the United Kingdom grocery wholesaling market - less than 20% - was not large enough to spark longer-term concerns.

The CMA began its investigation in May and launched an in-depth probe in July after Tesco and Booker asked for the inquiry to be fast-tracked.

Tesco is the UK's biggest supermarket, with a market share of about 28 per cent while Booker is Britain's largest food wholesaler.

Tesco's plans to merge with wholesalers Booker has been given the green light by the Competition and Markets Authority in a move due to add to the fears some analysts have for the firm.

The CMA examined 12,000 locations where a branch of Tesco competes with a Booker-supplied shop and concluded competition was sufficient to prevent prices from going up.

"Tesco has cleared a major hurdle in its proposed merger with Booker, though the competition regulator can expect a postbag full of angry letters from convenience shop owners before it comes to a final decision next month", said Laith Khalaf, senior analyst at Hargreaves Lansdown.

A raft of rival wholesalers have also raised concerns the deal could see Booker benefit from improved supplier terms making it hard for them to compete, according to the CMA. However, the CMA also concluded that the wholesale market would remain competitive in the longer term, noting that Booker's share of the United Kingdom grocery wholesaling market - at less than 20% - was not sufficient to justify the longer-term concerns.

'Almost every geography was notably ahead versus consensus for second quarter organic service revenue growth, particularly Germany that saw a better performance in mobile and Spain benefiting from "more for more" price increases'.

"Millions of people use their local supermarket or convenience store to buy their groceries or essentials".

"The risk is that just as the good ship Tesco is steadying, it gets blown off course by the Booker deal", he said.

"The CMA opened its phase one investigation into the merger in May".

The CMA will now take more evidence before making a final decision by the end of December. Purchasing Booker boosts its access to the foodservice sector at a time when it is under growing pressure from discounters Aldi and Lidl.

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