Tesco booker merge

The Competition and Markets Authority (CMA) has launched its long-awaited investigation into the proposed £3.7bn merger of Tesco and Booker.

The Phase I inquiry will run until 25 July, with comments by interested parties to be submitted by 13 June.

The CMA said it would use its investigation to ”assess whether the deal could reduce competition and choice for shoppers and other customers, such as stores currently supplied by Booker.”

After this first phase, the merger will either be cleared or, if the CMA identifies a potential reduction in competition, it will be referred for an in-depth investigation which could last up 24 weeks.

Tesco chief executive Dave Lewis and Booker boss Charles Wilson have been advised by their legal teams that the deal does not flout competition rules, with the crux of their argument the fact that Booker operates a franchise model.

Despite the wholesaler adding the weight of Budgens, Londis, Premier and Happy Shopper to the Tesco empire, they claim it would not be adding “more stores”.

Industry powerhouse

Yet with 730 large supermarkets, alongside 2,839 smaller stores under the Express, Metro and One Stop banners, its coming together with Booker would create an industry powerhouse , which some claim would squeeze suppliers and put Tesco in a position to dictate prices.

Booker supplies almost 6,000 sites owned by independents at symbol groups Premier (3,358 stores), Budgens (150 stores), Family Shopper (52 stores) and Londis (1,903 stores) from 172 C&C sites under its own name and 28 trading as Makro.

After the merger was announced The Times reported there are 635 Tesco stores situated less than 500 metres from a shop in Booker’s network of Premier, Londis and Budgens stores.

However, exclusive research for The Grocer by Maximise UK in February found the successful completion could hinge on around 400 stores, which it predicted would fail the competition authorities’ latest guidance on store takeovers.

Maximise, run by David Haywood - a veteran of the Safeway-Morrisons deal and the Co-op’s acquisition of Somerfield - studied 5,000 Booker locations through extensive store finder checks on the CMA’s competitor listing.

Based on the assumption that the combined 7,300 Tesco, One Stop, Londis, Premier and Budgens stores will be viewed as one fascia post-merger, Maximise found strong grounds for the CMA to order Tesco to sell off hundreds of stores, although the research suggested the number would not be a “deal breaker.”

However Shore Capital’s Clive Black has warned a CMA investigation could see the deal “immersed in postcode analysis constipation” and then see Tesco hit with extensive also remedies, which could damage the attractiveness of the deal.