Tesco shares rose by over 7% as it won provisional approval for its £3.7bn (€4.1bn) takeover of wholesaler Booker from the UK competition regulator, moving the UK’s biggest retailer closer to securing a new avenue of growth.
The UK’s Competition and Markets Authority said it had conducted an in-depth review and provisionally concluded that Tesco’s purchase of Booker does not raise competition concerns.
The provisional unconditional clearance will come as a major relief to Tesco. Most analysts had expected Tesco would have to agree store disposals to gain clearance.
Both Tesco and Booker, the country’s biggest grocery wholesaler, welcomed the authority’s announcement. Tesco said it expected to complete the deal, which also requires shareholder approvals, in early 2018.
Bernstein analysts said they expect some uncertainty to remain, with the focus shifting to whether investors will approve the deal. Their analysis indicates that Tesco will achieve the required 50% shareholder approval and that the focus will be on Booker, where the threshold is 75%.
“With a higher shareholder hurdle and the Tesco share price below the level when the bid was made, Booker shareholders may argue for a higher share price,” the broker’s analysts said.
The authority is inviting further evidence before making its final decision by the end of December. Some Tesco shareholders have criticised the bid, saying Tesco is overpaying and that it will distract from the company’s turnaround plan.
Rival wholesale groups have also called for the takeover to be blocked.
Meanwhile, new data show British grocery inflation hit its highest level since November 2013 in the past quarter, driving supermarkets’ sales growth.
Market researcher Kantar Worldpanel said grocery inflation was 3.4% in the 12 weeks to November 5. Despite sales increases, all of the UK’s big four grocers lost market share to the German discounters Aldi and Lidl.
Lidl was the UK’s fastest growing supermarket for the fifth straight period with sales up 15.1%, while rival Aldi’s sales rose 13.1%. Tesco’s sales were up 2.3%.