'An absolute field day': Tesco and Booker's £3.7 billion merger could be a competition headache
Broker Shore Capital says in a note on Friday morning that the UK's Competition and Markets Authority (CMA) "could have an absolute field day here." Independent retail analyst Nick Bubb has almost the exact same reaction, writing in Friday's "Daily Retailer" newsletter: "Our instant reaction is that the Competition and Markets Authority (CMA) will have a field day with this."
While Tesco and Booker are nominally in different ballparks - Tesco is a supermarket, Booker supplies convenience stores, pubs, and restaurants - there is notable overlap in the convenience store market. Bernstein's Bruno Monteyne estimates that both control around 10% of the market there.
Tesco CEO Dave Lewis and Booker CEO Charles Wilson made soothing noises about pacifying the CMA on a call with journalists on Friday morning. But analysts are not so sure they will have an easy time of it.
Russ Mould, investment director at stockbroker AJ Bell, says the deal will "inevitably raise competition concerns as Booker owns the Budgens, Londis and Premier chains and also supplies Tesco's rivals." Bubb says: "It is by no means clear that the CMA will allow things to proceed very far without having a good look at the overlap."
Monteyne expects Tesco and Booker to sell off some of its convenience store network to get past the competition regulator. Neil Wilson at ETX Capital agrees, saying: "Store footprint might be something that the regulator will want to see some action on. Booker owns Budgens, Londis, Premier - all convenience stores that Tesco has gone against head to head with its Express stores. Tesco products will be everywhere on the high street."
But just because there is a likely path to appeasing the regulator, does not mean it will be easy. Shore Capital highlights the regulator's role in the merger of Poundland and 99p Stores, which took six months to approve.
The broker also flags the fact that Tesco and Booker will not be the only ones trying to convince the CMA - their rivals will be pushing the regulator to block the deal. Shore Cap says: "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."