Schroders fund manager Nick Kirrage has told the BBC’s Today programme that Tesco will be paying a premium and that he has major concerns about the deal. He commented: “Booker is a business that has been doing extremely well; its profits have been growing quickly and profit margins have been expanding rapidly. Tesco will have to pay a premium and has made an assumption that profits are going to continue to grow in the future. History suggests that the bulk of acquisitions destroy value for the acquiring shareholders in instances where you buy a high multiple. Even fewer deals create value and so we objectively think, looking back at history, that this is a deal that is going to struggle to create value. We’ve had a constructive period of engagement with Tesco in private, but we’ve now come to a point where we are unable to go any further. Tesco have made it clear to us that they are compelled to do the deal and that they feel committed to it. Therefore, we feel that it’s in the best interests of our clients to move into the public arena and try to raise some awareness and see if there are other shareholders who have concerns like ourselves.”
Replying to the assertion, a spokesperson for Tesco said: “Since announcing the transaction the majority of our top 10 shareholders have chosen to increase their shareholding in Tesco and we hope to convince all our shareholders of the merits of the transaction.”
It has also been announced that Tesco has agreed to pay a fine of £129m to avoid prosecution for overstating its profits in 2014 and has also agreed an £85m compensation package for investors. It is said that he retailer expects to record a one-time charge of £235m to cover the penalty, compensation and related costs.