Many will have heard about the Sainsbury’s and Argos merger, some questioned the suitability, feasibility and the stability of whether the merger would be to the benefit of the two companies and their customers. Judging by the increase in share price recorded for Sainsbury’s over the Christmas period. The merger that was criticised by sceptics appears to have been a success.
Sainsbury’s are undoubtedly one of the biggest supermarket stores in the UK. However, Tesco arguably reign as the biggest of them all. And it now appears that they want to make sure this is retained with their own merger plans.
Tesco is said to be in the process of buying the Booker Group for approximately £3.7 bn.
But who are the Booker Group?
The Booker Group has been hiding right under consumers’ eyes for many years. They own convenience stores such as Londis, Premier and Budgens, whilst also acting as a food retailer to many restaurants such as Byron, Wagamama and Prezzo. But it also supplies to a number of other well-known customers such as Marks and Spencer and a number of the biggest cinema chains.
So why do Tesco want them?
Even though Tesco is predominantly a supermarket food retailer, its merger with the Booker Group could make them the biggest general food business. Unlike the Sainsbury’s/Argos merger, Tesco are not particularly stretching too far out of their comfort zone. The merger is similar to Sainsbury’s/Argos in the fact that Tesco are branching out into another target audience for customers. But already being the biggest food retailer will aid them considerably.
Will this have an impact on the consumer?
The worry for the consumer is that of a rise in prices, but Tesco are unlikely to comment on this. Tesco believe the merger will create ‘synergies’, giving a further variety of options to consumers, with a presence across a greater geographic area. A potential synergy from the merger would be the availability of more click and collect locations. The potential synergies of the merger may stop a rise in prices, but there is still risk of this as retaliation to the competitive pricing of the ever-growing low cost supermarkets.
Will this effect Tesco’s competitors?
As already highlighted, Tesco is the most dominant player within the grocery market of the UK. The supermarket “old timers” have seen substantial competition form the low cost grocery stores such as Lidl and Aldi. In an attempt to combat the increasing effect of these stores on custom and prices, Tesco will become an even larger entity once and if the merger completes.
However, this gives rise to and has an effect on the competition within the market of grocery stores. Therefore, even though they have not yet stated whether an investigation will be carried out, the Competition and Markets Authority will consider the merger and its impact on the market in fine detail. The fact that Tesco and the Booker Groups’ share prices increased with release of the merger in the news, will not be to the companies advantage if the merger is investigated.
A lot of preparation goes into a merger of this magnitude. Mergers in general require significant amounts of investigation and enquiries prior to any action being taken. Stephensons have been involved in many different sized mergers. The majority of the work required prior to completion of a merger is done on the disclosure of information. The corporate team at Stephensons have a great amount of experience in the preparation that goes into disclosure.
For more on company mergers and if you want some advice on whether you are thinking of a merger, please contact Thomas Baker on 01616 966 229.