The UK's largest supermarket, Tesco, announced this morning that it will merge with wholesaler and convenience store supplier Booker Group.
Share pries for both companies flew, with Tesco finishing the day nine per cent higher, at 206.3p, while Booker rose 16 per cent to 212.3p – above Tesco's offer price. Here's everything you need to know about the new partnership.
The merger values Booker at 205.3p per share, a 12 per cent premium on its closing price yesterday. Booker shareholders will get 42.6p in cash and 0.861 per cent in Tesco shares, meaning Booker will own 16 per cent of the new company.
How Tesco is stumping up the cash
Most of the deal is being financed with new shares, meaning the cash cost for Tesco will come to £770m. Booker has £100m net cash on its balance sheet.
How it compares with other retail mergers
- Alliance-Boots merger (2006): £7bn
- Sainsbury's-Home Retail Group merger (2016): £1.4bn
- Poundland-99p stores merger (2015): £55m
- Iceland-Booker merger (2000): £373m
Booker boss Charles Wilson will join the combined company's executive committee and Booker's chairman Stewart Gilliland will also be on the group's board. Gaining some supply chain expertise at a time when big suppliers such as Unilever are trying to increase prices will help Tesco. Wilson – who Shore Capital has described as a "genius" – will be an asset to the combined group's board.
Expected cost savings
The Tesco board is expecting cost synergies of at least £200m per year, with £175m from areas such as procurement and distribution, and £25m savings on administration costs.
Problems on the horizon?
Shore Capital Markets analyst Clive Black said: "We believe that the UK Competition & Markets Authority (CMA), not the most rational or straightforward body we should add, could have an absolute field day here; Christmas has come very early for this crazy band of bureaucrats.
"More to the point the non-Booker independent and wholesale trade will be up in arms on this proposed merger and so it could be a very messy process."
Also, Tesco chief executive Dave Lewis has confirmed the supermarket's senior independent director, Richard Cousins, resigned from the board because he did not agree with the deal, which Black said was "not a good omen".
The brands involved
Booker Group's brands include Happy Shopper, Premier, Budgens, and Londis. However, these are franchised to independent retailers, raising the possibility that the CMA may not cause a fuss.