Tesco’s £3.7bn takeover of Booker has been provisionally cleared by the UK’s competition regulator.
The Competition and Markets Authority (CMA) has claimed the takeover could increase competition in the wholesale market and reduce prices for shoppers.
Tesco and Booker do not compete head-to-head in most activities, the CMA said.
Booker is the UK’s largest food wholesaler, and also owns the Premier, Budgens and Londis symbol groups.
More than 30% of Booker’s sales are to the catering sector. Although Tesco does not currently supply the catering market, it is keen to do so, the BBC reported.
The CMA concluded that the wholesale market will “remain competitive in the longer term”, as Booker’s less than 20% share of the UK grocery wholesaling market “was not sufficient to justify the longer-term concerns.”
Although it has lost market share in the last few years, Tesco is the UK’s biggest supermarket with a share of around 28%.
The retail market is experiencing a time of consolidation. Due to changing shopping patterns, strong competition from the discounters such as Aldi and Lidl, and the growth of Amazon, retailers including Tesco have been trying to bolster their businesses by buying food wholesalers.
This week, Nisa shareholders have approved the company’s £137m takeover by the Co-operative Group.
Morrisons has become the UK wholesale supplier to convenience store chain McColls and it has begun a partnership with Amazon.
Many analysts were asking how many of its 1,700 convenience stores Tesco would have to lose to get the takeover approved.
After receiving numerous submissions from across the grocery sector, the regulator has come to the provisional conclusion that no remedies are needed.
Tesco and Booker have successfully argued that their stores don’t directly compete with each other.
In reaching its conclusions, the CMA found that it was “likely Booker would be able to negotiate better terms from a number of its suppliers for some of its groceries, and that it was likely to pass on some of the benefits of these savings to the shops that it supplies.”
“This might increase competition in the wholesale market, as well as reducing prices for shoppers.”
Simon Polito, chair of the CMA’s inquiry group, said: “Our investigation has found that existing competition is sufficiently strong in both the wholesale and retail grocery sectors to ensure that the merger between Tesco and Booker will not lead to higher prices or a reduced service for supermarket and convenience shoppers.”
Both Tesco and Booker welcomed the CMA’s provisional decision and added they will continue to work with the competition regulator, which is due to publish its final report by the end of the year.
Booker commented that it was “pleased that the CMA has provisionally concluded that this transaction does not lessen competition.”
Tesco said it expects the merger to be completed in early 2018.
Tesco’s shares were up 4.5% and Booker’s rose 4.7% after the CMA announcement.