Tesco's takeover of Booker gets full thumbs-up from the CMA

21 December 2017

Tesco’s £3.7bn takeover of Booker was yesterday (December 20) fully cleared by the competition watchdog despite widespread concern that the deal will hand the UK’s biggest supermarket a greater grip on the market.

The announcement by the Competition and Markets Authority (CMA), follows a seven-month review and a provisional clearance at the end of last month.

The CMA justified its decision by saying that Booker doesn’t own the shops (independents as well as Londis, Budgens, Premier and Happy Shopper) it supplies.

“So although these shops compete with Tesco, Booker cannot directly determine how they compete”, the authority said. The CMA reached this decision despite submissions from rival wholesalers; it added that during its investigation it found a quarter of symbol group retailers and a third of independent shops switched wholesalers at least once a month.

The CMA said that it had ‘considered’ concerns that Booker would be able to use Tesco’s buying power to purchase groceries at a lower price, which would mean other wholesalers could not compete and eventually lead to Booker raising its own prices, free of competition.

But the CMA has concluded that the wholesale market will still ‘remain competitive’ and that Booker’s share of the grocery wholesaling market “was not sufficient to justify these long term concerns”.

Since the CMA published its provisional ruling waving through the deal last month, the UK’s biggest delivered wholesaler Palmer & Harvey has collapsed into administration; some observers believe P&H’s demise and the CMA ruling are connected, which led many to think the CMA might reconsider, (especially as the absence of P&H would mean Booker would potentially have a greater slice of the wholesale market).

Since January, when the ‘TesBook’ deal was announced, there’s been a flurry of activity in the market, with Morrisons sealing a wholesale contract with McColls and The Co-op buying Nisa. The CMA said that these changes “indicate that rival wholesalers might be able to offer prices competitive to the merged entity.”

Simon Polito, chair of the CMA inquiry group, said: “We have carefully listened to feedback from retailers and wholesalers who operate in what are highly competitive UK retail and wholesale sectors. Retailers have told us that they shop around for the best prices and service from their wholesaler, and we are confident that this will continue after Tesco buys Booker.”

He added: “This has been an important investigation for us. Millions of people use their local supermarket or convenience store to buy their groceries or essentials, so it is vital that they have enough choice to secure the best deal for them. Having examined the evidence in depth, we are satisfied this will remain the case following the merger.”

The deal still has to be approved by the UK Listing Authority and voted on by the shareholders of both companies. Tesco said this morning it expects the votes to occur in February, ahead of full completion in March.