Tesco’s [LON:TSCO] proposed acquisition of Booker [LON:BOK] could provoke other UK food retailers to seek out mergers beyond their core segments, sector bankers told this news service.

On 27 January, Tesco announced plans to acquire Booker, a wholesaler and convenience symbol group, for GBP 3.6bn. The deal awaits UK Competition and Markets Authority (CMA) clearance and shareholder approval on both sides.

Nobody in the industry expected the deal, as the consensus was that Tesco was focused on its own turnaround, said Harsha Wickremasinghe of Livingstone Partners. There is now a lot of jockeying going on to respond to it, he said.

“Industry consolidation, and the push to deliver synergies, is inevitable given rising input costs and strong competitive pressures keeping price rises in check,” added Mervyn Metcalf of Dean Street Advisers.

This pressure to consolidate could prove costly for prospective bidders, a third banker and two fund managers following the sector said. The sector is overpriced and industry players are cannibalising each other without adding value for shareholders, one of the fund managers said.

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