The competition watchdog has begun an investigation into Tesco’s planned £3.7bn takeover of wholesaler Booker.
The Competition and Markets Authority will assess whether the tie-up could reduce choice for shoppers and for small stores supplied by Booker.
Booker is the UK’s largest food wholesaler and also owns the Premier, Budgens and Londis store brands.
The deal was announced in January, with Tesco and Booker saying it would create the “UK’s leading food business”.
Despite rising competition from the likes of Aldi and Lidl, Tesco remains Britain’s biggest supermarket with 27.6% of the market in the three months to March, according to Kantar Worldpanel. That was down slightly from the 28.1% for the same period last year.
- What does Booker Group do?
The CMA has announced the first phase of its investigation, which will run until 25 July.
A spokesperson said it had taken a relatively long time to start the probe because the CMA has had to collect detailed information about the deal from both Tesco and Booker.
It has asked for interested parties to submit their views by 13 June.
After this first phase, the CMA will either clear the takeover or submit it for a more in-depth investigation, unless Tesco and Booker take steps to counter any competition issues identified.
Among its recommendations, the CMA could force Tesco to sell stores if it believes the deal will harm competition within the industry.
When the merger was announced, Tesco and Booker said they did not expect it to be completed until late 2017 or early 2018, suggesting both companies expected closer scrutiny from the watchdog.
As well as raising concerns over competition issues, Tesco’s move for Booker has also been criticised by some of its shareholders.
In March, one of Tesco’s biggest investors, Schroders, warned about the cost of the deal, telling the BBC that the supermarket giant was paying a “premium” and it had “major concerns” about the deal.
Tesco shares were down 0.7% in afternoon trading in London at 185.5p, and have fallen 10% this year.
The announcement follows reports on Friday that Sainsbury’s is considering a takeover bid for wholesaler Palmer and Harvey (P&H).
P&H has a turnover of more than £4bn a year and supplies alcohol, groceries and frozen food to 90,000 retail outlets, including Tesco supermarkets.
Jonathan Buxton, head of retail at Cavendish Corporate Finance, said it would be a defensive move by Sainsbury’s in the face of the Tesco-Booker deal.