THE proposed £3.7bn merger of Tesco and Booker has been given the provisional go ahead from the Competition and Markets Authority.
Concerns that the merger may reduce competition in the wholesale and retailing sectors have been largely quashed by the CMA, with the authority finding “very little direct, head-to-head competition” between the two firms.
The CMA acknowledged that while the new firm would be likely to benefit from better terms from some of its suppliers, it would “generally be against the principles of merger control” to block the merger “just because it made one or both parties more efficient and a stronger competitor”.
Ahead of the CMA’s provisional report, chief executives from seven major UK wholesalers had written to the authority to express their concerns with the merger, however the report finds that as Booker’s share of the UK grocery wholesaling market is currently less than 20%, it would not be in a position to substantially lessen competition across the whole market.
Concerns over competition in retail – Tesco stores currently compete with independent and symbol group retailers including Premier Londis and Budgens – were also addressed. The CMA found the newly merged entity “would not have any material incentive to worsen wholesale price or service” to Booker supplied independent and convenience stores in an attempt to shift customers to Tesco. The CMA reckons competition is sufficiently strong that such a tactic would not result in Tesco recapturing sufficient sales to recapture sales lost through the symbols.
The provisional report also addresses concerns raised by delivered wholesaler Palmer & Harvey, which currently counts Tesco as its largest customer. While The CMA found that the newly merged firm is “likely to have an increased incentive to shift purchases away from P&H”, there would continue to be “sufficient options” for the wholesale supply of tobacco.
Commenting on the provisional findings, Simon Polito, chair of the CMA’s inquiry group said: “Millions of people use their local supermarket or convenience tore to buy their groceries or essentials. Strong competition in the market ensures that shoppers can choose the best deal for them.
“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.”
The CMA now has until 26 December 2017 to come to and report on its final decision. Interested parties are now invited to make representations to The CMA based on the findings.