A shareholder revolt against Tesco’s proposed merger with Booker has called into question the merits of the deal.
Investors Schroders and Artisan, who between them speak for 9% of Tesco’s shares, believe that the tie-up should not go ahead.
Their doubts apparently echo those of Richard Cousins, who stood down from Tesco’s board because he disagreed with the plan.
There are other City doubters. Shore Capital’s highly regarded Clive Black has pointed out that Tesco’s lacklustre share price can also be taken as evidence of a lack of investor appetite for the merger.
Perhaps the most compelling points made in a letter from Schroders managers to Tesco chairman John Allan were that there is more to be done to turn around Tesco – implying that Booker could be a distraction – and that “there is compelling academic and empirical evidence that, on average, acquisitions destroy value for acquiring shareholders”.
The points are well made. However, Tesco’s leadership team, led by Dave Lewis, has so far shown great clarity of purpose, which has put the retailer firmly on track to recovery, albeit the journey is not yet over.
“It’s the job of leaders to look into the future as well as to ensure smooth day-to-day running of the business. In that context, the deal with Booker makes sense in a food landscape that continues to change”
This week’s deal with the SFO over the 2014 accounting scandal represents another line drawn under problems of the past.
It’s the job of leaders to look into the future as well as to ensure smooth day-to-day running of the business. In that context, the deal with Booker makes sense in a food landscape that continues to change.
In Lewis’s own words, it brings “combined experience in retail, wholesale, supply chain and digital” and serves both the in- and out-of-home food markets.
While it is true that many mergers have failed to deliver on their original promise, the door cannot be closed to new thinking.
While sticking to the knitting may often be a good general principle, the past few years have shown that old models need to be updated.
The demise of BHS was perhaps the most obvious instance of a retailer that failed to change with its customers.
But as Amazon founder Jeff Bezos once said: “If your customer base ages with you, you’re Woolworths.”
Looking after the pennies
Although only 60 shops were affected, and they had already closed following the acquisition of 99p Stores by Poundland, it was not the sort of action you’d expect from a business owned by Steinhoff.
Steinhoff’s financial clout is such that it is hard to believe a more equitable solution could not be found than an administration of the rump 99p Stores business, which presumably freed it from rent obligations.
Administrations should be used in the circumstances for which they are designed, emergencies, rather than as a convenient method of business streamlining.