Tesco to Buy Food Wholesaler Booker for $4.7 Billion -- 2nd Update
27 Januar 2017 - 1:18PM
Dow Jones News
By Ian Walker
LONDON-- Tesco PLC's Friday agreement to buy Booker Group PLC
for GBP3.7 billion ($4.66 billion) combines the U.K.'s largest
retailer with its largest food wholesaler, in a surprise deal that
the supermarket chain expects to bring major cost savings.
Tesco shares were up 8.5% on the news in morning trading in
London, while Booker gained 16%.
Tesco billed the acquisition--its largest ever in the U.K.--as
catapulting it from the country's biggest supermarket chain to its
biggest food business, giving the grocer access to the market for
eating out, worth an estimated GBP85 billion a year.
The supermarket chain will gain access to Booker's more than one
million customers--which it serves through delivery and
cash-and-carry--including restaurants, pubs, movie theaters and
convenience stores. It said British consumers would see more fresh
food available at more outlets while its customers would have
access to 8,000 more locations to pick up their click-and-collect
orders.
The deal is Tesco's first acquisition under Chief Executive Dave
Lewis, a former Unilever PLC executive who took the helm in 2014 as
Tesco was struggling through an accounting scandal and losing
market share to newly aggressive discounters Aldi and Lidl.
Mr. Lewis has since been focused on turning around Tesco's U.K.
performance by cutting prices, adjusting its range and improving
customer service. Far from being in acquisition mode, Tesco
retrenched from a variety of businesses and big markets as it
worked to improve its performance at home. The supermarket chain
sold garden-center chain Dobbies, coffee chain Harris + Hoole and
Giraffe restaurants, among other noncore businesses, and sold its
Turkey and South Korea units.
Friday's deal--along with the announcement that Tesco will
restart paying dividends in fiscal 2018, after suspending them for
the past two years--was seen by some analysts as a sign that the
once-troubled grocer has turned a corner. But others noted that
stiff pricing competition and sluggish revenue growth had
translated into an urgent need for retailers to cut costs,
motivating Tesco's acquisition of Booker.
"We read this as a clearly a defensive move in an increasingly
tough U.K. trading environment," said Société Générale analyst
Arnaud Joly.
The deal wasn't without controversy. Mr. Lewis admitted that the
abrupt resignation of its senior independent director, Richard
Cousins, earlier this month was motivated by Mr. Cousins's
reservations about the acquisition.
Tesco and Booker first began talking about working together a
year ago, according to Mr. Lewis, who knew Booker CEO Charles
Wilson from his time at Unilever. The companies eventually decided
that a Tesco acquisition of Booker was the best way to tap growth
opportunities. Mr. Wilson will join Tesco's board and executive
committee once the deal closes.
The acquisition will need approval from the U.K. Competition and
Markets Authority, which likely will require some convenience-store
closures. The companies have an estimated 10% share of the U.K.
convenience market. Shore Capital analyst Clive Black said the
regulator could make closing the deal difficult.
Booker shareholders will get 0.861 new Tesco shares and 42.6
pence in cash for each share held, giving them about a 16% share of
the combined company. Tesco said the cash-and-share deal would
deliver at least GBP175 million of cost savings, partly through
procurement and distribution. Revenue synergies will be at least
GBP25 million a year.
Ian Walker contributed to this article.
Write to Ian Walker at ian.walker@wsj.com
(END) Dow Jones Newswires
January 27, 2017 07:03 ET (12:03 GMT)
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