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A new dynamic for the UK grocery sector

When Tesco announced a £3.7bn bid for Booker, it took the market by surprise, and generated a huge amount of media and competitor scrutiny

It also prompted other leading UK retailers and wholesalers to consider similar mergers or agreements (eg Co-op/Nisa, Morrison’s/McColls) as well as a review by the UK competition regulator, the Competition and Markets Authority (CMA).

Retail and wholesale in one

Booker is the UK’s leading grocery wholesaler and Tesco its leading grocery retailer. This retail-to-wholesale merger – the first of its kind – would create the country’s largest food group.  

Under the UK’s 2002 Enterprise Act, the merger was referred to the CMA to determine whether or not the deal would result in a ‘substantial lessening of competition’ (SLC) in any part of the UK food supply chain.

A faster track

Given the novel issues raised by the case, Tesco and Booker requested that the CMA fast track the review to its in-depth ‘phase 2’ investigation.

Agreeing to the request, the CMA delved into classic customer-foreclosure concerns and less-explored buyer-power issues, the latter being largely driven by concerns raised by suppliers.

Data to the fore

We built a credible and trusting relationship with the CMA, which allowed us to deliver our case to the relevant decision-makers in the right way.

We were ready to meet their concerns too as, due to our longstanding relationship with Tesco and therefore deep knowledge of their business, we had developed an antitrust strategy and deal narrative more than a year before the announcement. We fed this into the review process, our evidence supporting the case for clearance and our comms strategy.

With Tesco and Booker occupying largely different parts of the supply chain, we also helped develop innovative and very sophisticated econometric analyses to determine the impact of the merger on the retail and wholesale markets. This meant co-ordinating a broad range of other advisers – such as economists, management consultants and financial advisers – and working closely with our client team to deliver the best possible outcome.

Clearance gained

Following the phase 2 investigation, in December 2017, the CMA cleared the deal with no conditions (PDF). It concluded that the transaction would not result in higher prices or poorer service, as it would not result in an SLC.

Having completed in March 2018, the deal marks yet another successful Tesco transaction involving Freshfields.