In a week when US President Donald Trump sparked fears of a conflict with North Korea, Tesco boss Dave Lewis is engaging in a battle of his own.

The supermarket giant is facing a fight with shareholders over the £3.7bn deal to acquire Booker, which major investors Schroders and Artisan Partners have already taken a vociferous stand against.

But Lewis is likely to come out all guns blazing in a staunch defence of the planned merger when the supermarket unveils preliminary results to the City next week.

“It is frankly a shame that talk of the Booker deal … has the potential to overshadow news of its full-year performance on Wednesday”

From a Tesco perspective, it is frankly a shame that talk of the Booker deal and the shockwaves it has caused among shareholders has the potential to overshadow news of its full-year performance on Wednesday.

The grocer is on track to slightly surpass the £1.2bn of group operating profit – its favoured profit measure – it targeted for the 2016/17 financial year.

Like-for-like sales in its UK business are expected to be in positive territory in both value and volume terms.

And Tesco is likely to boast further improvements in other key metrics including customer satisfaction, staff happiness and the strength of supplier relationships as its turnaround builds momentum.

Mixed reaction

Tesco jpg

Tesco jpg

Yet, at a time when Tesco is going on the front foot by targeting group margins of 3.5% to 4% by 2020, its bold, forward-thinking strategy to snap up Booker has paradoxically left Lewis on the back foot.

Some shareholders and City analysts appear somewhat bemused by the rationale behind the deal, while others are wary of the timing, given that plenty more work is still required to get Tesco’s core grocery operation firing on all cylinders again.

Sainsbury’s acquisition of Argos, a rapidly improving Morrisons and new leadership slowly breathing life into Asda have only increased the difficulty of an already tough task, although Lewis has made some tremendous strides to date.

“We have identified synergies that are significantly ahead of the earnings of Booker to date, so we are completely committed to the deal”

Dave Lewis, Tesco

Concentrating on the bread and butter and avoiding the distractions associated with such a large-scale corporate buyout is surely then more important than ever.

Despite such views being reflected in Tesco’s stuttering share price over the past two months, Lewis remains convinced of the opposite.

He defiantly told journalists last week: “We see the growth opportunity that coming together with Booker represents.

“We have identified synergies that are significantly ahead of the earnings of Booker to date, so we are completely committed to the deal.”

Growth and synergy

The former Unilever man wants to increase Tesco’s footprint in the lucrative convenience and food service markets that Booker services so well, while he has highlighted “significant” revenue and cost synergies.

And, somewhat perversely, analysts from Macquarie suggest the Booker deal will actually increase Tesco’s focus on the core UK business, pushing the proportion of group revenue it rakes in from Britain beyond the 70% mark and potentially providing a catalyst for further overseas disposals.

When it comes to selecting which businesses to focus on and grow going forward, and with the war of words with shareholders and analysts heating up, Lewis will be under pressure to broker a ceasefire.

But as the war of words with shareholders and analysts prepares to heat up, Lewis will be under pressure to broker a ceasefire.