An activist stakeholder in wholesale and convenience grocery firm Booker has said Tesco’s impending acquisition was “on the cheap”.
In letter to the board, Sandell Asset Management, a US-based hedge fund that holds the equivalent of 1.75 per cent in Booker, said it plans to oppose Tesco’s £3.7 billion takeover unless the wholesaler secures a better deal.
Sandell believes fair value for Booker shares is between 255p and 265p per share. This is above Booker’s closing price of 221.5p on Thursday and the value of Tesco’s bid when the deal was agreed in January last year, when the cash-and-shares offer was worth 205.3p per share.
Sandell added that the premium Tesco offered to Booker, which was 12 per cent at the time the deal was announced, was “well below the average” paid to British companies that have been bought in the last decade – which it said was about 25 per cent.
“In Booker, Tesco is getting a great asset and a great management team on the cheap,” Sandell founder Thomas Sandell said.
“Unless the consideration is increased, we do not believe that shareholders should vote in favour of the deal at the upcoming shareholder meeting.”
The activist shareholder also highlighted that Tesco’s vulnerability to online competitors meant its shares were “poor currency”.
It also argued that Booker should pay out all of its profits for its 2018 financial year in its closing dividend to shareholders, rather than as much as 65 per cent as agreed with Tesco.
Sandell’s criticism of Tesco’s acquisition comes ahead of a vote by Booker’s shareholders to approve the takeover deal at a meeting on February 28.
Booker needs 75 per cent of its shareholders to support for the deal for the takeover to go ahead.
The deal received the blessing of the Competition and Markets Authority in December, despite it attracting criticism from wholesale competitors and Tesco shareholders over fears the UK’s largest wholesaler would increase the Tesco’s dominance of the country’s food market.
Booker and Tesco have not yet publicly responded to Sandell’s statements.
Earlier this week, Tesco announced that it would install Booker chief executive Charlie Wilson as its new UK and Ireland chief executive, replacing Matt Davies in April during a handover period.