“Major concerns” over Tesco/Booker deal
A fund manager with Schroders – one of Tesco’s major shareholders – has voiced “major concerns” over the grocer’s planned £3.7bn bid for Booker. Schroders fund manager Nick Kirrage told the BBC’s Today programme that Tesco was paying a “premium” for Booker.
“Booker is a business that has been doing extremely well, its profits have been growing very quickly and profit margins have been expanding rapidly,” said Kirrage.
“Tesco have had to pay a premium and have made an assumption that profits are going to continue to grow in the future.
“History suggests that the vast bulk of acquisitions destroy value for the acquiring shareholders in instances where you buy a high multiple.
“Even fewer deals create value and so we objectively think, looking back at history, that this is a deal that is going to struggle to create value. We have major concerns about it.”
Despite Schroders’ concerns, Tesco’s CEO Dave Lewis has said that the supermarket chain is still “completely committed” to the Booker deal.
A tie-up between Tesco and Booker would have a significant impact on the UK’s parcel delivery business.
Booker not only has a powerful food wholesale network but it also has the Premier, Budgens and Londis chains of convenience stores.
Collectively, these chains encompass around 4,000 stores.
Tesco itself already has about 3,500 stores.
So if the Tesco/Booker merger goes ahead, Tesco could end up with a network of almost 8,000 stores which could be used as click and collect points.
The Londis stores work on a franchise system, whereby the stores are owned independently by the retailer.
In a conference call with City analysts in February, Tesco’s Lewis argued that the expanded click and collect network would be beneficial to both Tesco and the independent store owners.
“Consider the idea that through this merger and through a network of close to 8000 click-and-collect points we would drive traffic to those independent stores as a way of giving more service from the combined operation,” Lewis was quoted as saying.
