Tesco Agrees to Buy Wholesaler Booker for About $4.6 Billion

Tesco Plc agreed to buy Booker Group Plc, a British food wholesaler that also operates convenience stores, for about 3.7 billion pounds ($4.6 billion) as Chief Executive Officer Dave Lewis makes the grocer’s biggest-ever deal to check the encroachment of discounters.
Booker investors will get 0.861 new Tesco share and 42.6 pence in cash for every share they own, the companies said Friday. Worth 205.3 pence at Thursday’s closing price, the bid represents a premium of 12 percent. Booker rose as much as 13 percent to a record, while Tesco advanced 8 percent.
“The deal will give Tesco more bargaining power with suppliers and a huge slice of the retail convenience market,” Bryan Roberts, an analyst at TCC Global, said by phone. “It’s a game-changing deal that’s completely from left field.”

Lewis is expanding Tesco’s convenience-food business and gaining more buying power as discounters Aldi and Lidl sap traditional grocers’ market share. Tesco would capture about 30 percent of the U.K. convenience-food market, combining its One Stop chain with Budgens, Londis and Premier, which are owned by Booker, according to Charles Allen, an analyst at Bloomberg Intelligence. That raises the likelihood of a long review by the U.K.’s Competition and Markets Authority.
The purchase is the first major one for Lewis, a longtime Unilever executive, who took over towards the end of 2014 to turn around a company in crisis. Tesco has lost market share to discounters including Aldi and Lidl, and the company is still grappling with the aftermath of a multi-million-pound accounting scandal.
Booker shareholders will own about 16 percent of the combined company as Tesco absorbs the British wholesaler, and its CEO, Charles Wilson, will join Tesco’s board. Tesco said it expects annual pretax synergies of at least 200 million pounds within three years of the transaction, plus cost savings of at least 175 million pounds.
Booker’s main business is selling grocery products to more than 500,000 customers spanning grocers, small convenience stores, hotels, pubs and restaurants. It employs about 13,000 people.

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