Tesco’s proposed £3.7bn takeover of Booker is set to come under the UK competition authority´s full scrutiny, with the two companies requesting to move straight to the more in-depth phase 2 investigative stage.
The Competition and Markets Authority (CMA) began a preliminary investigation into the impact of the deal on competition last month. It was to make a decision by July 25 on whether it would need to put the deal under further scrutiny in a phase 2 review.
However, the latest intervention from Tesco and Booker shows the firms accept that the authorities will not be able to wave through the deal after just the preliminary review stage.
The CMA is tasked with deciding whether Tesco´s purchase of wholesaler booker could reduce competition for shoppers as well as other retail outlets currently supplied by Booker.
As well as being the UK´s biggest wholesaler, Booker also controls the Londis and Budgens convenience store brands.
If the CMA decides the deal poses a threat to competition, it could attach conditions to the merger, such as compelling Tesco to sell off stores.
Tesco already owns thousands of convenience stores through its Tesco Express and One Stop brands, though finding more suitable sites for further expansion has proved challenging. Buying Booker will enable it to supply thousands more convenience stores.
The deal could also give Tesco more buying power over its suppliers and enable it to cut distribution costs through further economies of scale.
However, Tesco shareholders have not been unanimous in their support for the deal, raising questions over whether the potential synergies and benefits stack up.
Certain institutional shareholders, such as Schroders and Artisan Partners, have voiced concerns that Tesco is paying too much for Booker.
Tesco is pressing ahead with its turnaround plan to reduce costs by £1.5bn. On Wednesday, the retail giant announced that it was cutting 1,200 jobs at its offices in Welwyn Garden City.
There has been evidence of an improvement in Tesco´s fortune´s since chief executive Dave Lewis took the helm. The retailer announced a 2.3% rise in UK like-for-like sales in the 13 weeks to 27 May, its strongest UK sales growth for seven years.