The Week Ahead: Tesco faces shareholder scrutiny over Booker deal

Dave Lewis, chief executive of Tesco, left, and Charles Wilson, chief executive of Booker at the ann

Dave Lewis, chief executive of Tesco, left, and Charles Wilson, chief executive of Booker at the announcement of the companies' merger deal in January. Photo: Stephen Lock/Tulchan Communications/PA Wire - Credit: PA

Tesco is expected to report an increase in full year profits this week but the supermarket giant faces growing shareholder scrutiny of its proposed £3.7bn takeover of Booker.

Tesco reports its annual results on Wednesday this week.
Photo: Rui Vieira/PA Wire

Tesco reports its annual results on Wednesday this week. Photo: Rui Vieira/PA Wire - Credit: PA

Although total sales, including the group’s international business, are forecast to remain broadly flat at £54.8bn in the year to February, Analysts at HSBC expect Tesco to report annual pre-tax profits of £464m, up from £162m last year, as a recovery led by chief executive Dave Lewis continues.

Mr Lewis has been hailed for beginning to turn Tesco around after the ill-fated reign of his predecessor, Philip Clarke, which saw profits and market share decline and an accounting scandal dog the company.

HSBC’s David McCarthy said: “Tesco has made good progress across a wide spectrum. Ranges have been simplified, volume growth has been strong and a major cost-cutting programme has commenced. At the same time, there is much going on behind the scenes.

“Tesco outperformed the market heading into Christmas but has slipped back below the industry average. Nevertheless Tesco is the second best performer of the Big Four this year in sales growth (lagging Morrison) and is the best performer in absolute terms.”

Booker has agreed a �3.7bn merger with supermarket giant Tesco.
Photo: Nick Ansell/PA Wire

Booker has agreed a �3.7bn merger with supermarket giant Tesco. Photo: Nick Ansell/PA Wire - Credit: PA


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However, Tesco’s attempted merger with wholesaler Booker is expected to overshadow the results, with a number of investors having spoken out against the deal in recent weeks.

Both Schroders and Artisan, which own 9% of Tesco, have publicly said that the deal should be called off, insisting that the price being paid is too high and that a merger will distract from the core business.

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However, others, such as Old Mutual Global Investors, have expressed the opposite opinion.

Bernstein analyst Bruno Monteyne said: “If Schroders and Artisan want to block the deal, it will be hard but not unsurmountable. There are sufficient large holders that haven’t disclosed their view that could sway this estimate.”

Tesco chief executive Dave Lewis speaking to store staff.

Tesco chief executive Dave Lewis speaking to store staff. - Credit: Archant

An analysis of shareholders carried out by Bernstein shows that the deal would be approved by 70% of votes cast, with the remaining 30% being “entirely against the deal or wanting material changes”.

The tie-up is also expected to face scrutiny from the Competition and Markets Authority (CMA), which could force Tesco to offload stores if it deems the deal harms competition.

Booker is the country’s largest wholesaler and also owns the Londis and Budgens convenience store brands.

Last month it was announced that Tesco is set to take a £235m hit after reaching an agreement with authorities over its 2014 accounting scandal which will see it make a hefty compensation payout to investors.

A further headache is that Tesco, like other supermarkets, is grappling with rising inflation following the collapse in sterling after the Brexit vote.

Higher costs have led to rising shelf prices for consumers, with experts predicting that shoppers will flock to discounters such as Aldi and Lidl as a result.

Mr Lewis is aiming to slash costs by £1.5bn over the next three years and, to this end, the supermarket has announced plans to cut back on night shifts and trading hours at its UK stores, with around 3,000 staff affected by the changes.

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