Tesco share price jumps as CMA approves Booker deal: Here's how the City reacted

 
Caitlin Morrison
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Tesco shares have jumped this morning (Source: Getty)

Tesco's takeover of wholesaler Booker Group has been cleared by the competition watchdog - provisionally, at least.

The Competition and Markets Authority said today that the £3.7bn deal does not raise competition concerns.

This is how City analysts reacted:

One step closer

"Tesco has cleared a major hurdle in its proposed merger with Booker, though the competition regulator can expect a postbag full of angry letters from convenience shop owners before it comes to a final decision next month," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

"The fly in the ointment could yet be Tesco shareholders, with some influential players still not backing the merger. It remains to be seen if there’s a silent majority out there who will give the deal the nod, or whether the vocal critics of the proposals are reflective of wider discontent amongst the ranks of Tesco investors.

"The problem is there’s a fine line between genius and lunacy, and this deal looks to be walking it. Tesco is a mature business with a high share of the market it operates in, and the Booker deal gives it the ability to leverage the buying power of the combined group."

He continued: "However the concern is that Tesco is trying to run before it can walk, and that a big merger like this could blow its nascent recovery off course. That worry is compounded by a tough consumer environment, changing shopping habits and fierce levels of industry competition."

The timing's right... probably

"It probably is a good time for some consolidation. The UK supermarket sector, Tesco especially, is exiting a recovery phase after a brutal period and there are further growth opportunities," said ETX Capital market analyst Neil Wilson.

"But it’s also hugely competitive and store deflation is hitting margins, meaning anything that can be done to pare back costs in areas like procurement, supply chain, distribution and store footprint is a good thing. Discounters are nipping at the heels of the big four

"However, the 24 per cent premium paid for Booker undoubtedly scrubs a lot of the value off the deal. The big risk seen by investors is that Tesco takes its eyes off the turnaround strategy."

Wilson said it was "hard to say" whether management has been distracted due to the proposed deal so far, but added: "Investors should be pleased the deal now looks done and management can focus on growing market share and improving margins again. Tesco is turning the corner but it takes time to right an oil tanker."

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