Tesco Buys Booker to “Create UK’s Leading Food Business”

27 Jan 2017 --- Tesco is to buy the UK biggest food wholesaler Booker Group in a shock £3.7bn ($4.6bn) deal. Tesco said the deal would create “the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital”.

The acquisition by Tesco, Britain’s biggest supermarket group, marks a change in approach as in recent times it has been closing stores in a bid to cut costs.

Booker is the UK’s biggest food wholesaler and the owner of the Budgens and Londis store brands as well as supplier to restaurants such as Wagamama.

The deal will add 4,500 stores supplied by Booker and 172 Booker wholesale sties into the Tesco business.

The deal will mean that Tesco will get access to supplying Britain’s pub, restaurant and café market.

It will also add 13,000 employees to Tesco’s UK headcount of 300,000.

Under the terms of the deal, Booker shareholders will end up owning around 16 percent of the combined group.

The deal will need approval from shareholders and regulators but is being backed by both boards.

The deal values Booker at 205.3p a share, or £3.7bn ($4.6bn), a premium of 12 percent of its closing price of 183.1p a share on January 2017.

Tesco said the combined entity, which is not expected to lead to job cuts, will be "well placed to serve the large, established 'in home' food market as well as the faster growing 'out of home' food market".

"By bringing together Tesco and Booker's retail and wholesale expertise, supply chain and digital capabilities, the combined group will be able to provide greater choice, quality, price and service in the food market, whilst improving efficiency and reducing food waste," Tesco said in its announcement.

"The combined group will bring together the capacity and capability to generate new growth and deliver significant revenue and cost synergies."

Dave Lewis, CEO of Tesco said: “Tesco has made significant progress in turning around our UK retail business. This Merger with Booker will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital.”

“Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available.”

Charles Wilson, CEO of Booker said: “Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve. We believe that joining forces with Tesco offers the potential to bring major benefits to end consumers, our customers, suppliers, colleagues and shareholders.”

Booker says it is "the UK's largest cash and carry operator, offering branded and private-label goods which are sold to over 503,000 customers including independent convenience stores, grocers, leisure outlets, pubs and restaurants". 

Richard Lim, chief executive of Retail Economics, said: “Tesco’s announcement to merge with Booker Group will be a game changer in the food industry.”

“Its laser-like focus on the core UK food business is cutting deeper down the supply chain. The acquisition will strengthen Tesco’s wholesale and supply chain expertise while its digital capabilities will improve efficiency and provide significant cost saving synergies."

Tesco has been losing market share in recent years in the UK. Under the stewardship of Lewis, Tesco has been recovering from an accounting scandal which led to the biggest loss in UK corporate history.

Lewis has looked to focus Tesco on its core UK market and sold off international operations.