Tesco warned over cost of £3.7bn Booker takeover

Sign outside a Booker warehouse Image copyright PA

One of Tesco's biggest shareholders has warned the supermarket's £3.7bn bid for wholesaler Booker is too generous.

Schroders fund manager Nick Kirrage told the BBC's Today programme that Tesco was paying a "premium" and he had "major concerns" about the deal.

Tesco chief Dave Lewis has confirmed that the company is "completely committed" to the Booker deal.

It brings together the UK's largest supermarket and the biggest cash-and carry business.

Schroders, which owns a 4.5% stake in Tesco, has warned that Booker is an expensive option.

'Destroy value'

"Booker is a business that has been doing extremely well, its profits have been growing very quickly and profit margins have been expanding rapidly," Mr Kirrage said.

"Tesco have had to pay a premium and have made an assumption that profits are going to continue to grow in the future.

"History suggests that the vast bulk of acquisitions destroy value for the acquiring shareholders in instances where you buy a high multiple.

"Even fewer deals create value and so we objectively think, looking back at history, that this is a deal that is going to struggle to create value. We have major concerns about it," he said.

Since becoming chief executive in 2014, Mr Lewis has worked on turning around the crisis-hit supermarket which reported a £6.4bn loss in 2015 - the worst in its history.

It comes as Tesco agrees to pay a fine of £129m to avoid prosecution for overstating its profits in 2014.

'Merits of the deal'

The supermarket said in a statement that it believed the deal would improve its recovery plans.

"We have been working on the transaction for over 12 months and believe the strategic and financial rationale is compelling," a spokesperson said.

The deal would drive growth for the two firms and help Tesco to source, distribute and sell food in the UK market, they said.

"Since announcing the transaction the majority of our top 10 shareholders have chosen to increase their shareholding in Tesco and we hope to convince all our shareholders of the merits of the transaction."

Image copyright PA
Image caption Budgens is one of the brands owned by Booker

Another major Tesco shareholder, Artisan Partners, which also owns a 4.5% stake, has questioned the deal as well, according to reports.

Tesco surprised investors in January when it announced the £3.7bn takeover of Booker. As well as its wholesale business, Booker also owns the Premier, Budgens and Londis convenience-store brands.

The acquisition has already cost Tesco its senior independent director, Richard Cousins, who left because he disagreed with the takeover.

Mr Kirrage added: "We've had a constructive period of engagement with Tesco in private, but we've now come to a point where we are unable to go any further.

"Tesco have made it clear in private to us that they are compelled to do the deal and that they feel committed to it and therefore we feel that it's in the best interests of our clients to move into the public arena and try to raise some awareness and see if there are other shareholders who have concerns like ourselves."

Artisan Partners was unavailable for comment.

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