Tesco-Booker: 70% of investors 'in favour' of deal

According to a poll by broker Bernstein, 70% of investors with a shareholding in Tesco or Booker would vote in favour of the deal, if the question were to be asked today.

The remaining 30% would be “entirely against the deal” or would seek “material changes”, Bernstein said.

But Tesco requires just 50% of its shareholders to vote in favour of the £3.7bn mega-merger for it to press ahead with the deal.

The results of the survey will come as a boost for the grocer’s boss Dave Lewis and chairman John Allan, who have come under fire from investors since revealing details of the shock move back in January.

As previously reported, Schroders and Artisan Partners, who between them hold a 9% stake in Tesco, have written to Allan separately urging him to pull the plug on the deal.

The investor duo labelled the deal “foolhardy” and said creating value for shareholders would be “extremely challenging.”

Schroders warned in its letter that it would “be encouraging other shareholders who share our views to voice them.”

But according to Bernstein, it would be “hard but not unsurmountable” for Schroders and Artisan to block the deal.

Bernstein received responses from 135 investors, 57 of whom had a stake in Tesco, representing 50% of its market cap.

The majority of Tesco shareholders surveyed supported the deal, representing 42.2% of its market cap – and taking it just 7.8% away from the 50% threshold it would require to progress with the acquisition.

The naysayers

By contrast, Bernstein found that non-Tesco shareholders were more sceptical towards the deal than those who held a stake in the supermarket giant.

Of the investors without a stake in the business, 60% said the merger was a bad idea or should have “materially different terms.”

The most common argument against the deal going ahead was the fact that it posed a risk to the recovery of the core UK business, due to the distraction it would cause executives and risks over execution.

A number of investors also insisted that the price Tesco has agreed to pay for Booker is too expensive.

Others pointed to the risk that Tesco would need to dispose of c-stores following a likely CMA probe and said there were “low odds” of merger and acquisitions of this ilk working.

However, investors were encouraged by the potential for “diversification” away from large supermarkets into “relevant high-growth” sectors of the food market, in the shape of food service and convenience.

Shareholders added that cost and revenue synergies from the deal were “likely to exceed guidance” identified by Tesco and Booker and identified the scope for balance sheet “improvement.”

Others identified Booker boss Charles Wilson – regarded by many of his retail contemporaries as “a genius” – as a key attraction for Tesco and a reason to press ahead with the deal.

Bernstein said that at last year’s Tesco AGM, 72.5% of its share capital voted.

Assuming a similar proportion of investors vote on the Tesco-Booker deal, the grocer would require 36.3% of the shareholder base to vote in favour of the acquisition, in order to reach the all-important 50% threshold.

Bernstein’s research suggested that 23.4% of Tesco’s share capital is “likely” to vote in favour of the deal, meaning that the grocer would only need to find 13% of shareholders’ votes to make the acquisition happen.