booker depot

Tesco is believed to be locked in informal talks with the competition authorities over its shock merger bid for wholesale giant Booker.

The Grocer understands teams working for Tesco and Booker have been frantically exchanging information on the deal with the Competition & Markets Authority, although any decision by the CMA on whether to launch a formal investigation is looking unlikely until at least next week.

Tesco and Booker are understood to have enlisted leading antitrust lawyers Freshfields Bruckhaus Deringer and Clifford Chance as well as regulatory consultants at Frontier Economics to represent them ahead of what many believe will be months of scrutiny by the competition authorities.

A source said: “The emphasis for both sides would now be on exchanging information as quickly as possible as it’s in all their interests to ensure there are no unnecessary delays.”

If the CMA does decide on launching an official Phase 1 investigation, it will be a statutory 40-day process to decide if the authority believes there is “a realistic prospect” of the mega merger leading to a substantial lessening of competition.

If it decides there is, that in turn would spark a 24-week, Phase 2 investigation by a CMA panel of independent members, which would have the power potentially to prohibit the merger or order remedies including a sell-off of some of Tesco’s c-store estate in order to allow the merger to go ahead.

The CMA’s probe is also likely to have a bearing on the ongoing BEIS consultation on the role of the Groceries Code Adjudicator, Christine Tacon.

The Grocer reported in October that the government was considering extending the GCA’s role to cover additional food and drink retailers and wholesalers, with Booker one of those seen as most likely to be added to the list.

“It would be silly for the CMA not to be talking to BEIS,” said the source.

Tacon has heaped praise on Tesco for its improvement in its conduct with suppliers since the findings of her investigation into the profits scandal reported last year. Experts believe the proposed merger adds huge weight to the case for her role to be extended into the wholesale sector.

Negotiations specialist John Butler said suppliers were expecting a “fundamental shift in trading relationships at Booker, moving from back margin to the new Tesco model of front margin.”

Whilst BEIS has been leading the inquiry into whether the Adjudicator’s role should be widened, some experts believe the CMA would have to launch a new investigation and resort to new regulation to allow her remit to be extended into the wholesale arena.

That poses further potential complications to the Tesco-Booker deal, with Tesco boss Dave Lewis saying last week he hoped it could be wrapped up by the end of next year.

Another source said: “It is possible that the CMA will have to get involved if the government decides it does need to go ahead and extend the Adjudicator’s remit.”