Simon Murphy, manager, Old Mutual UK Equity Fund, Old Mutual Global Investors
We are still delving into the details of this transaction, but as shareholders of both Booker Group and Tesco, we are excited about the deal.
From a Booker Group perspective the announced synergies of at least £200m per annum exceed the entire profits of the company last year, and we are able to participate in the upside from growth in the catering sector.
From a Tesco perspective, the addition of 5,800 independent convenience shops creates a network of 8,000 collection points from which consumers can access Tesco banking, mobile and payment services. Tesco also has the potential to access the large eating out market that Booker already operates in. It can do this by using some of its excess space in large stores, combined with Booker’s expertise in delivering produce to pubs, restaurants and other catering customers throughout the country. Financially, the deal improves Tesco’s debt metrics to the extent that the business can restart dividend payments, having already gone some way towards that through its good performance over the last year.
In summary, the combination enables both businesses to improve their offer to their customers in terms of increased choice, better prices and better service. It also works well financially for both sets of shareholders and accelerates growth at both companies.