Tesco's Booker takeover given go-ahead by shareholders

Tesco and Booker Group shareholders have both voted through the supermarket giant's contentious £3.7bn takeover of the country's leading wholesaler.

Booker will be absorbed into Britain's largest grocery group on 5 March, with boss Charles Wilson taking on the role of chief executive of Tesco's retail and wholesale operations in the UK and Ireland.

Dave Lewis, Tesco's group chief executive, said: "I'm delighted that the shareholders of both companies have supported the merger.

"This merger is about growth, bringing together our complementary retail and wholesale skills to create the UK's leading food business. This opens up new opportunities to provide food wherever it is prepared or eaten - 'in home' or 'out of home' - and will benefit our customers, suppliers, colleagues and shareholders."

Cost synergies from the deal are estimated at around £200m a year, mainly from buying and distribution, with Lewis having said that the merger will generate a return greater than the cost of capital within two years of completion. EPS will increase in year-two as well, although this excludes ‘implementation costs’.

Major institutional investors Artisan and Schroders, Tesco's third and fourth largest investors, had urged the board to abandon the takeover in part because they said they believe the 24% premium paid for Booker makes the destruction of value more likely.

The Competition & Markets Authority approved the deal in December, to the consternation of some rivals and analysts, some of whom had called for the deal to be blocked and argued it threatened the survival of independent retailers by giving Tesco too much power over grocery buying. A combined Tesco and Booker would be able to drive other operators out of business, they said, as well as having some affect on Booker's customers, such as Budgen, Londis and Premier.

But the regulator decided these shops could choose where to buy products and that competition in the retail sector made it unlikely Tesco would use the merger to raise prices or cut service levels. Most shops use more than one wholesaler and they switch frequently.

While Booker is the largest wholesaler in the market, its share is less than 20%, so the CMA said it was not big enough for it to force rivals out of business by using Tesco's buying power to purchase more cheaply.