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Tesco-Booker deal to face crunch shareholder vote

PUBLISHED: 06:00 26 February 2018

Tesco's proposed takeover of the Booker Group faces investor scrutiny this week. Photo: Rui Vieira/PA Wire

Tesco's proposed takeover of the Booker Group faces investor scrutiny this week. Photo: Rui Vieira/PA Wire

Tesco will hope to avoid a bloody nose this week when its £3.7 billion takeover of wholesaler Booker faces shareholder scrutiny.

Tesco and Booker investors will hold separate meetings on WednesdayTesco and Booker investors will hold separate meetings on Wednesday

Tesco and Booker investors will hold separate meetings on Wednesday to cast their votes on the proposed tie-up, which has been billed as delivering £200 million in cost savings.

The deal has received a mixed reception from shareholder advisory groups amid concerns that Tesco’s offer undervalues the Londis and Budgens owner.

However, Britain’s biggest supermarket was handed a boost on Wednesday when advisory firm Pensions Investments and Research Consultants (Pirc) urged shareholders to back the merger.

In reports to Tesco and Booker shareholders, Pirc advised investors to approve the deal to create the “UK’s leading food business”.

The proposed tie-up with Tesco and Booker has been billed as delivering £200 million in cost savings.         Photo: Gareth Fuller/PAThe proposed tie-up with Tesco and Booker has been billed as delivering £200 million in cost savings. Photo: Gareth Fuller/PA

Despite the boost, Britain’s biggest supermarket could still be in for a bumpy ride after Institutional Shareholder Services recommended Booker investors oppose the deal.

ISS said the transaction “does not warrant support at the current terms”.

In a note, ISS said: “Although the combination is expected to result in substantial synergies, it appears that Booker shareholders will have limited potential benefit from those synergies.

“In addition, the rationale for Booker shareholders to give up control appears less than compelling at the relatively low premium offered.”

ISS said Tesco appeared to be “getting the better deal” under current terms.

The disapproval adds to criticism from Sandell Asset Management, which is pressing for a higher offer from the supermarket giant.

Sandell, which owns a 1.75% slice of Booker, said it should pay out all of its 2018 profits as a closing dividend to shareholders, as opposed to 65%.

The group also claimed that Booker is worth between 255p and 265p a share, much more than the 205.3p offered by Tesco.

Tesco, which is undergoing a turnaround under chief executive Dave Lewis, got the green light for the takeover from the competition watchdog in December.

The firms also announced that highly regarded Booker boss Charles Wilson will head Tesco’s UK business following the tie-up.

The supermarket group has more than 3,000 stores across the UK, while Booker is the country’s largest wholesaler.

It supplies more than 5,000 stores under the Premier, Londis, Budgens and Family Shopper brands, as well as thousands of independent retailers and caterers.

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