When Tesco made a £3.7 billion swoop for cash-and-carry chain Booker last January it marked perhaps the biggest change in strategy since Jack Cohen set up his Hackney market stall in 1919.

For the first time, Tesco would go from serving the public in High Street shops and out-of-town hypermarkets to providing groceries to trade buyers — corner shops, restaurants, pubs and bars. Within months, deal frenzy had gripped rivals including Morrisons, Sainsbury’s and the Co-op.

Today, investors gave their final nod in favour of the takeover at Tesco’s AGM on Aldersgate in the City. Booker's approval followed shortly.

Despite some disquiet from investors including activist Sandell, Schroders and Artisan, the two boards have worked hard to convince investors the deal makes sense. Here’s how:

Wholesale change

A key reason for the deal was to improve Tesco’s access to the chain restaurants market in which Booker, led by Charles Wilson, has enjoyed strong growth as a supplier. The merger benefits Tesco by making it a major supplier to 117,000 corner shops, including Premier and Londis, plus farm shops and delicatessens, as well as 440,000 restaurants and pubs from Carluccio’s and Wagamama to Michelin-starred venues.

The deal also means Booker’s clients can benefit from Tesco’s food innovations such as gluten-free ranges, and its recently launched Wicked Kitchen vegan meals.

From debts to dividends

Tesco chief Dave Lewis has done much in his three years of repairing the business whose financial scandal he discovered when he arrived.

Part of that included selling businesses to cope with its mountain of debt. While he made a start, the company remains heavily indebted, an issue which has held back dividends to shareholders.

Booker, on the other hand, is hugely cash positive, so combining the two should ease Tesco’s financial crunch. Analysts at Redburn say the ratio of Tesco’s profits to its debt will fall from its stratospheric 5.2x today to 4.6x. Still high, but far more comfortable.

Not only that, but Tesco’s pension deficit will benefit from cash-generative Booker, as the deficit will be backed by a bigger stream of earnings.

Redburn is not in general a fan of the deal, citing botched Tesco takeovers in the past, but even it has to admit this is a big benefit.

The enlarged group will boast revenues of nearly £60 billion. Wilson says the company intends to be “capital disciplined” post-merger, mostly using existing space and resources to grow, rather than borrowing to invest.

Estimated cost savings and benefits of £200 million are also expected. “The cashflow that Booker brings, plus the synergies that they will extract in time, will help Tesco reduce its debt more quickly and gives it a stronger capability to pay larger dividends over time,” says Shore Capital’s Clive Black.

Buying power

The drive into wholesale is something of a rearguard action for Tesco as it faces a stagnating grocery retail market. Customers have shifted away from doing big out-of-town weekly shops and have switched in their millions to discounters Aldi and Lidl.

That goes for Tesco’s rivals, too. Little wonder Co-op and Morrisons followed it with copycat wholesaler mergers.

For Tesco, becoming the UK’s biggest retailer and wholesaler brings massive buying power when it comes to fresh fruit, vegetables and meat. For Booker’s customers, too, the merger should bring benefits as the combined business has more vans, more depots and more manpower to deliver around the country. Food suppliers such as Brakes will struggle to match such coverage.

Booker has already grown its share of the wholesale market share from 7% to 12% in recent years. With Tesco, it should get to 15%-20%.

Hero worship

Wilson is seen as a hero by investors, and will surely succeed Lewis in the top job at Tesco. The City chatter has it that Lewis might fancy going back to run his old shop, Unilever when Paul Polman retires. Wilson, the brains behind Sir Stuart Rose’s time at Marks & Spencer, has led the cash-and-carry chain since 2005 and turned it around. He first held tentative talks with Tesco in 2009, it has emerged. In that time, he took Booker’s market value from £600 million to £4 billion. Having him in charge of Tesco is, as Bruno Monteyne, a former Tesco executive and analyst at Bernstein says, a major pull. Another point: Wilson has a stake worth £250 million in Booker, equating to 6% of the business. With this deal, he swaps his big stake in little Booker for a small stake in titanic Tesco. That will make it far easier to sell his shares without hitting the share price when he eventually decides to make his exit. We told you he was clever.

Breeding loyalty

Holding a cash-and-carry card has long been a point of pride for small businesses. Combining that army of Booker customers with Tesco’s 16 million Clubcard holders gives the combined group one of the biggest customer databases in Britain. With that size of a population to pore over, management will be able better to work out how to sell more to each other’s customers.

Online gains

Tesco is the giant of the online grocers, but Booker is no slouch either. In 2008, it was doing £100 million sales via its websites with 12,000 customers. Last year it had £1.1 billion sales and 570,000 customers. The most striking thing is Wilson spent only £2.5 million over a decade to achieve that. The combination of Tesco and Booker’s multi-temperature warehouses and delivery fleets should enable them to scale up both online operations at minimal cost. Lewis has talked about using some of Booker’s retail customers to expand Tesco’s click-and-collect points to 8000.

A discount war

Perhaps the most eye-catching potential fallout from the deal could be a new retail chain.

Tesco, off the back of a decent Christmas trading season, is said to be setting up a standalone brand to take the fight to Aldi and Lidl. What’s more, Wilson recently boasted that Booker can undercut them on price. The biggest criticism of the deal is that it risks being a distraction for a convalescing Tesco, now worth £17 billion, less than half its value almost 10 years ago.

Although Lewis has lived up to his moniker “Drastic Dave” by cutting thousands of jobs and closing stores to turn the business around, the Booker deal will add little to Tesco’s retail business, critics have warned.

Lewis disagrees: “We’ve stabilised it and got ourselves to a place where we’re moving forward. We’ll stay rigorous on cost, efficient on capital and we’ll open ourselves up to different innovation and growth opportunities.” Watch this space.

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