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Tesco to buy Budgens and Londis owner: what it means for investors

Written by: Ian Forrest
Tesco has announced an agreed takeover bid of wholesaler and convenience store owner Booker, but what does this mean for investors?

Supermarket giant Tesco today announced an agreed takeover of wholesaler and convenience store owner Booker, in a deal which it values at £3.7bn.

For each share in Booker Tesco is offering 0.86 shares in the new combined group and 42.6p in cash. Based on yesterday’s closing share prices the offer is worth 205.3p per share, which is a relatively modest 12% premium.

As an added incentive Tesco said the deal would enable it to restart dividend payments in 2018. Interested investors should note Booker’s chief executive Charles Wilson will join Tesco’s board as part of the deal.

This deal has come out of the blue for shareholders of both entities and was welcomed by the market, with Tesco’s shares up 10% this morning. The appeal for Tesco is clear as it provides access to the growing trend for eating out through Booker’s wholesale business which supplies many small restaurants and catering groups.

We have changed our recommendation of Booker to a ‘hold’ while the deal is under consideration by its shareholders. Tesco remains a ‘hold’ as fierce price competition and promotions are likely to remain a squeeze on margins for some time.

Ian Forrest is an investment research analyst at The Share Centre

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