Tesco agrees takeover of garden centre chain

British supermarket giant Tesco extended its reach even further today after agreeing a £155m (€228m) deal to buy one of the UK’s biggest garden centre chains.

The offer for Dobbies, with 21 stores focused on Scotland and northern England, allows Tesco to capitalise on the current boom in gardening and related demand for “green” products, such as composting kits and water butts.

Tesco pledged to maintain the Dobbies brand, which dates back to 1865, and run the business along existing lines. However, it is likely to pursue expansion in the south of England and offer a greater range of carbon-efficient products, including insulation and solar panels.

The proposed takeover surprised the City today as it involved investment outside of the core Tesco business and brand. Analysts had named Scottish retail tycoon Sir Tom Hunter as the front-runner to buy Dobbies after he recently snapped up other chains in the sector, including larger rival Wyevale.

Sir Tom owns 10.5% of Dobbies, but any plans for a counter-offer may be frustrated as Tesco has already built up a 28% stake in Dobbies.

Takeover activity in the garden centre sector has been rife as investors eye the increased popularity of gardening and green issues, plus the chance to create destination stores with a wider range of products and services.

Chief executive Terry Leahy said Dobbies represented an exciting opportunity for Tesco.

He said: “The increasing popularity of gardening, and in particular the trend towards environmentally friendly products, makes this an attractive sector for Tesco to invest in. The deal is an important part of our strategy to provide customers with greater access to affordable energy saving and environmental products.”

Mr Leahy added: “Dobbies is an excellent business with a first-class management team and a great brand that we will retain and develop from its Scottish base.

“With our backing and support, the management team will invest in the development of Dobbies in order to realise more quickly its full potential, create value for shareholders and grasp the opportunities offered by a shift towards green consumption.”

Tesco’s offer price of £15 (€22) per share is at a premium of 28% to the company’s value prior to the start of bid speculation last month.

Dobbies chairman Alex Hammond-Chambers said his company would be able to benefit from Tesco’s expertise, including in improving its supply chain, online business and store portfolio.

He said: “This deal will allow our Scottish success story to grow, bringing new stores and exciting new products across the UK.”

Richard Ratner, an analyst at Seymour Pierce stockbrokers, said: “The deal gives Tesco another leg, as, if the bid goes through, there will now be two major professional retail players in the highly fragmented garden centre industry – Tesco and Tom Hunter – rather than just one.”

Tesco recently announced profits of £2.55bn (€3.75bn) for the year to February 24. Dobbies said today that half-year pre-tax profits improved to £2.5m (€3.68m), from £1.7m (€2.5m) a year earlier.