Advisory firm Institutional Shareholder Services (ISS) yesterday recommended that Booker shareholders vote against the proposed £3.7bn merger with Tesco.
The news comes a week after US hedge fund Sandell Asset Management, which holds a 1.75% interest in Booker, announced it had written to the wholesaler’s directors expressing its ‘concerns’ over the current Tesco offer.
ISS said the merger presents “attractive growth opportunities and strong rationale for Tesco”, but the rationale for Booker shareholders “to give up control” appears “less-than-compelling” at the “relatively low” premium offered.
ISS added: “Most importantly, the estimated synergies of £200m almost match Booker’s Fiscal Year 2019 earnings before interest and tax estimate of £218.2m, substantially lowering the effective multiple and making the transaction extremely compelling for the acquirer. The share of the upside for Booker shareholders will be limited by their 16% ownership of the combined company.”
ISS added that there would be limited risk for Booker’s shareholders should the deal fall apart.
Tom Sandell, chief executive of Sandell Asset Management, said: “ISS’s recommendation validates our belief that the Tesco offer does not offer a fair value for Booker’s great assets and management team, and that Booker shareholders should vote against the transaction.
“If Tesco is unwilling to raise its offer to a fair level, we agree with ISS that Booker shareholders should reject the offer, and that the downside of walking away from the offer is limited. Sandell encourages the Booker board to take heed of ISS’s conclusions and to engage with Tesco’s board to secure a fair deal for all Booker shareholders.”
Booker and Tesco have not yet publicly responded to the news. Two of Tesco’s largest shareholders, Schroders Investment Management and Artisan Partners, have also said they will vote against the takeover/merger.
Booker shareholders vote to approve or reject the merger at a meeting on February 28.