The UK’s biggest supermarket group, Tesco, has agreed to buy the UK’s biggest food wholesaler, Booker Group, in a £3.7bn deal.
The firms said the deal would create the “UK’s leading food business”.
Booker Group is the UK’s largest cash and carry operator, and supplies everything from baked beans to teabags to 700,000 convenience stores, grocers, pubs and restaurants.
Booker also owns the Premier, Budgens and Londis convenience-store brands.
By combining with Booker Group, Tesco is expanding beyond its traditional food retailing business and making strides into the restaurant and takeaway food sectors.
“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,” said Tesco chief executive Dave Lewis.
Mr Lewis said rising prices from suppliers had played no part in the decision to sign the deal.
Speaking to the BBC’s Today programme, Mr Lewis said he believed the transaction would not face a challenge from competition authorities, as it would not result in Tesco owning any more stores, and he dubbed it a “low risk” merger.
But others were not so sure. One UK supermarket executive told the BBC the Competition and Markets Authority (CMA) “may not like the idea of one company’s products in so many convenience stores”.
And independent retail analyst Nick Bubb said: “The CMA will have a field day with this.”
A spokesman for the CMA said: “We do not comment on potential investigations.”
Analysis: Rob Young, BBC business reporterTesco to buy food wholesaler Booker
The tie-up between Tesco and Booker Group will create a food giant that not only sells products in supermarkets but in tens of thousands of independent retailers, some of them Tesco’s rivals, and in hundreds of thousands of cafes and restaurants.
The deal is likely to attract the attention of the competition authorities.
In recent years, Tesco has been in crisis, losing market share in the tough retail market and selling off or closing parts of the company.
Tesco has sold its South Korean arm, its Turkish business and the Giraffe restaurant chain. Today sees a change of tack for the company.
Not only is it expanding again, it also plans to resume its dividend payment next year – a sure sign the company sees a brighter financial future.
Investors welcomed the surprise announcement, sending Tesco’s shares up 10% in morning trade.
Under the terms of the cash and shares deal, Booker shareholders will end up owning about 16% of the combined group.
“The deal with Booker shows Tesco is not going to sit on its hands and wait for its dominant market position to slowly leak away to competitors,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.
“The UK’s supermarkets are engaged in new strategies to cope with the brave new world, where the discounters have stolen market share and consumers have turned away from big superstores, preferring instead to do their shopping in convenience stores or on their mobile phones.
“Sainsbury bought Argos, Morrisons is flirting with Amazon, and now Tesco has revealed its plans to drive further growth.”