March 28, 2017 / 1:02 PM / 8 months ago

Tesco boss defends Booker deal, says many investors on board

LONDON (Reuters) - Tesco (TSCO.L), Britain’s biggest retailer, remains committed to its agreed 3.7 billion pound ($4.7 billion) takeover of wholesaler Booker (BOK.L) despite opposition from some big shareholders, its boss said on Tuesday.

Dave Lewis, Group Chief Executive of Tesco speaks at the CBI annual conference in London, in this file photograph dated November 9, 2015. REUTERS/Toby Melville/files

On Monday, Tesco’s third and fourth largest investors -- Schroders (SDR.L) and Artisan Partners, who together hold 9 percent of its equity -- called on the supermarket group to withdraw its offer, saying it was overpaying and the deal was a distraction from the company’s turnaround plan.

“We’re absolutely, completely committed to the deal,” Tesco CEO Dave Lewis told reporters on Tuesday.

“Since we made the announcement (on Jan. 27) I’ve met tens of shareholders, here and in North America, and I’m really pleased with the response that we’ve got,” he said.

Lewis said support for the deal was borne out by investors buying Tesco stock over the last two months.

“If you look what the buying has been in our top 10 register you see that a significant majority of our top 10 have increased their holding within Tesco,” he said.

He added those investors recognized the growth opportunity of the deal and the projected annual synergies of 200 million pounds -- well ahead of the earnings of Booker in 2016-17.

Bruno Monteyne, a former senior Tesco executive who is now an analyst at Bernstein, does not think the Schroders/Artisan stance reflects majority opinion among Tesco shareholders.

He said that although there was an element of “distraction risk” it was not sufficient to derail the deal.

He believes shareholders are generally very supportive of Lewis’ turnaround plan.

“If they were to vote down this Booker deal, this would be read as a big vote of no-confidence in this management team, even if that isn’t the issue at heart or the issue raised by the (dissenting) shareholders,” he said.

Simon Murphy, head of UK large cap at Old Mutual Global Investors -- a top-40 investor in both Tesco and Booker -- reckons the deal will accelerate growth at both companies.

“We remain supportive of Tesco’s acquisition of Booker Group, believing it works well for both sets of shareholders,” he said.

Lewis also stressed Tesco was still in the early stages of the timetable for taking over Booker, with the deal still to be formally considered by competition authorities.

If it crosses that hurdle, the deal will need to be approved by 50 percent of Tesco shareholders at an investor meeting.

“This has got a long way to run,” said Lewis.

Shares in Tesco, down 7.6 percent this year, were up 0.7 percent at 191.2 pence at 1538 GMT, also influenced by news the firm is to pay 214 million pounds in fines and compensation for investors to settle a probe over a 2014 accounting fraud.

Lewis also rejected criticism that Tesco’s engagement with shareholders over the deal had been inadequate.

He said it was “not at all unusual” for Tesco not to consult shareholders before proposing the deal and that he had spoken to Schroders and Artisan on several occasions.

“We offered both of them the opportunity to come and spend more time in the business and to understand why we felt so strongly about it,” Lewis said.

“One of them took it up and we spent six hours with them, walking it through, and the other declined to come.”

Editing by Mark Potter and Catherine Evans

Our Standards:The Thomson Reuters Trust Principles.
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