February 23, 2018 / 3:24 PM / 22 days ago

Two major Booker investors back Tesco deal amid growing dissent

LONDON (Reuters) - Two leading investors in British wholesaler Booker are backing a takeover by retail giant Tesco, despite a late push by an activist hedge fund and shareholder advisers to secure better terms.

FILE PHOTO: A branded sign is displayed outside of a Booker Wholesale store in London, Britain January 27, 2017. REUTERS/Neil Hall /File Photo

Tesco agreed a 3.7 billion pounds deal for Booker in early 2017 and received regulatory approval in December. It now needs 75 percent of votes cast at a Feb. 28 meeting of Booker investors to proceed.

But doubts have grown over whether enough will back the deal, with Booker investor Sandell Asset Management and advisory firms Institutional Shareholder Services (ISS) and Glass Lewis all opposing it.

They argue the cash-and-shares offer from Britain’s biggest retailer does not hand Booker investors a big enough premium, ramping up the pressure on both companies ahead of the vote.

In a boost to Tesco and Booker, however, two major institutional investors in the wholesaler have told Reuters they will vote for the takeover.

“We are believers that the combination of Booker and Tesco can create long term value for our clients and hence support the deal,” said Simon Brazier, UK fund manager at Investec Asset Management. Investec holds a 2.2 percent stake in Booker, making it a top-15 shareholder, as well as a small stake in Tesco, according to Thomson Reuters data.

“The price we will receive in the short term is a fair price for our Booker shares but we are also taking into account the further opportunity that we will have from the combined group.”

Stephen Anness, a fund manager at top-20 Booker investor Invesco Perpetual, has also thrown his weight behind the deal and Booker Chief Executive Charles Wilson.

“He’s added so much value for shareholders over a decade at Booker - I think it’s the right thing to back Charles and he thinks this is the right deal for the business,” Anness said.

FILE PHOTO: Tesco Group Chief Executive, Dave Lewis speaks at an analyst presentation in London, Britain, April 12, 2017. REUTERS/Hannah McKay /File Photo

“We are supportive of the deal in its current format ... I think it’s a fair price for the company and what I’m more interested in is the next 5 or 10 years of the combined businesses,” said Anness, who also has Tesco as one of his fund’s top holdings.

Their support comes despite vocal dissent from U.S. activist hedge fund Sandell, which said on Feb. 8 it had a 1.75 percent stake in Booker and planned to oppose the deal unless Booker could agree more generous terms.

Since then, merger-arbitrage fund Alpine Associates has also said it thinks the deal undervalues Booker, although Michael Wegener at Case Equity Partners said many other hedge funds no longer had investments in Booker and so could not lend their support to Sandell.

Demand from hedge funds to borrow Booker shares, as part of a bet the price could fall if the takeover collapses, has risen since late January, though no one fund has a big enough position to warrant disclosure to Britain’s financial markets regulator.

Astec Analytics data up to Thursday’s close showed shares on loan had jumped to 57.6 million from 1.8 million on Jan. 18.

Wilson aside, the eight biggest investors in Booker, with a combined stake of nearly 40 percent, either declined to comment on the deal or did not respond to requests for comment.

There has also been criticism of the deal from some Tesco shareholders, with top-5 investors Artisan Partners and Schroders both branding it a mistake.

The late Richard Cousins also quit as senior independent director on Tesco’s board in protest against the takeover.

A third top-10 Tesco shareholder told Reuters this week, however, that despite “sabre-rattling” from some Booker shareholders, “my gut feel is it’s highly likely to go through”.

Additional reporting by Maiya Keidan and Tom Pfeiffer in London; Editing by Mark Potter

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