March 30, 2017 / 6:23 AM / 5 months ago

Tesco target Booker says tobacco decline slows sales growth

LONDON (Reuters) - Booker (BOK.L), the British wholesaler that has agreed to a 3.7 billion pound ($4.6 billion) takeover by Tesco (TSCO.L), said quarterly sales growth had slowed, with tobacco sales hurt by a shop display ban and plain packaging restrictions.

Chief Executive Charles Wilson said he remained enthusiastic about the prospect of merging with Tesco, Britain's biggest retailer, as agreed in January despite investor concerns.

Tesco's third and fourth largest investors, Schroders (SDR.L) and Artisan Partners, this week called on the supermarket group to withdraw its offer, saying it was overpaying and the deal was a distraction to its turnaround plan.

"We are excited about the benefits the enlarged group will bring to consumers, our customers, suppliers, colleagues and shareholders," said Wilson, noting the deal was currently going through the competition process. Wilson will become a Tesco director once the deal goes through.

Booker, which supplies the Budgens, Londis, Happy Shopper and Premier convenience chains and also operates cash and carry business Makro, said group sales rose 0.5 percent in the 12 weeks to March 24, while like-for-like sales were up 0.7 percent in the period, the last quarter of its financial year.

That is a marked slowdown from like-for-like sales growth of 3.2 percent in the previous three months. Tobacco sales were down 7.5 percent in the latest period.

Shares in Booker, up 13.4 percent so far this year, were up 0.2 percent at 199.5p at 0845 GMT. The Tesco cash and share offer values the stock at around 207p, based on current prices.

DEAL IN FOCUS

Analysts pointed out that while tobacco is a high turnover business for Booker it has little impact on profit.

"We continue to expect the Tesco deal to complete despite concerns expressed by two of the leading shareholders," said Peel Hunt analyst Charles Hunt, who has a "Buy" rating on the stock.

"These numbers should reassure that Booker provides stronger growth than the food retailers as well as access to the foodservice market for Tesco," he added.

Prior to the update, analysts' average forecast was for a pretax profit of 171.3 million pounds for the 2016-17 year, up from 150.8 million pounds in 2015-16, according to Reuters data.

Total sales for the year were 5.3 billion pounds, up 6.7 percent.

Tesco, responding to the dissenting shareholders, has said it was "completely committed" to the deal.

Tesco is looking to increase its exposure to Britain's 85 billion pound "out of home" food market, including cafes, restaurants and takeaways, which is growing at a greater pace than the 110 billion pound "eat at home" market.

Though Tesco and Booker maintain they have a compelling competition case the deal is expected to face intense scrutiny from Britain's competition authorities as it will increase Tesco's influence on the overall UK grocery market where it already has a 28 percent share.

Although both companies are currently engaging with Britain's Competition and Markets Authority (CMA), it is yet to formally confirm the start of a Phase 1 investigation.

($1 = 0.8044 pounds)

Reporting by James Davey; Editing by David Evans/Keith Weir

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