The competition regulator has provisionally cleared Tesco’s £3.7bn deal to buy wholesaler Booker.
The Competition and Markets Authority (CMA) said its in-depth investigation into the proposed tie-up, first announced in January, had raised no competition concerns.
Tesco is the UK’s largest grocery retailer by some margin, while Booker is the largest wholesaler – supplying many of Tesco’s competitors.
But the CMA said it was clear the two firms did not currently compete head-to-head in most of their activities – such as supplying the catering sector, which accounts for 30% of Booker’s business.
Image: Tesco has a 28% share of the retail grocery market
It had earlier raised fears that more than 350 local areas where there is an overlap with Booker-supplied franchises such as Premier, Londis, Budgens and Family Shopper could face “worse terms”.
However, the watchdog found there was sufficient competition to defeat any attempt by the merged company to raise prices or reduce service levels either in retail or wholesale.
It also decided the merger could bolster competition in the wholesale sector, rather than dent it as many of Booker’s competitors argued, because the firm could benefit from improved suppliers’ terms – with the savings being passed on to its own customers.
The CMA said the competitive landscape looked generally rosy because Booker had less than a 20% share of the UK grocery wholesaling market.
The decision is subject to a final decision next month following a consultation on the CMA’s findings.
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Simon Polito, who chaired its inquiry group, said: “Our investigation has found that existing competition is sufficiently strong in both the wholesale and retail grocery sectors to ensure that the merger between Tesco and Booker will not lead to higher prices or a reduced service for supermarket and convenience shoppers.”
Tesco welcomed the findings.
Its statement to the stock market said: “We look forward to creating the UK’s leading food business, bringing together our combined expertise in retail and wholesale.
“This merger has always been about growth, and will bring benefits for independent retailers, caterers, small businesses, suppliers, consumers, and colleagues.
“We will continue to work with the CMA as it prepares the final report due by the end of December. We anticipate completion of the merger in early 2018.”