Tesco Tightens Retail Grip With £3.7 Billion Booker Acquisition

A decade ago, Brits first learned that one out of every seven pounds was spent at Tesco (LON: TSCO). Although discount stores and online shopping have cut into sales in recent years, the ubiquitous retailer will see its share of the grocery market go up with the announced buy of food wholesaler Booker (LON: BOK) for £3.7 billion in cash and stock. The deal increases Tesco’s presence on the high street, with convenience chains Budgens, Londis and Premier set to enter its portfolio, as well as in Britain’s burgeoning catering industry.

Booker

The deal took a year to come together, The Guardian has reported, and under the agreement, each Booker shareholder will receive 0.861 Tesco shares and 42.6 pence in cash—or roughly 205.3p—per share, with existing Booker shareholders retaining some 16% of the combined company once the ink has dried. The sticker price represents a 12% premium to Booker’s close of 183.1p on Thursday.

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Tesco’s modest acquisitive habit spiked in 2011 with three completed deals, according to data from the PitchBook Platform. But that year chief executive Sir Terry Leahy left the company, and his replacement, Philip Clarke, embroiled the company in 2014’s accounting scandal still under investigation by the UK’s Serious Fraud Office for failing to mind a £326 million budget gap.

However, his replacement, Dave Lewis, former CEO of Unilever (NYSE: UN), has tried to turn Tesco’s bruised reputation around. That includes divesting its South Korean business, Homeplus, for roughly £4.2 billion in 2015. And he fits the Booker acquisition squarely in that wider project along with Tesco’s plans to start paying dividends again this fiscal year for the first time since the scandal broke.

Although it will face stiff regulatory scrutiny over further consolidating the UK’s retail industry, investors welcomed the news. Tesco ended the trading day up 9% at 206p, with Booker shares enjoying a 16% bump to close at about 213p.

Lewis said he expects the deal will close in late 2017 or early 2018, according to Reuters.

Article by Adam Putz – PitchBook