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Tesco drops as Lewis insists Booker will deliver value

Shares in Tesco fall to the bottom of the FTSE 100 despite signs of turnaround, as planned Booker takeover worries investors.

 
Tesco drops as Lewis insists Booker will deliver value

Shares in Tesco (TSCO) have fallen to the bottom of the FTSE 100 despite signs of a continued turnaround at the supermarket, as the planned takeover of Booker (BOK) continued to worry investors.

Tesco fell 5.7% to 184.4p despite beating forecasts with a full-year operating profit of £1.28 billion, 30% higher than the year before. But profit before tax fell to £145 million, down from £202 million the previous year, due to a doubling of the pension deficit to £6.6 billion and the £235 million cost of its 2014 accounting scandal.

Tesco bears meanwhile pointed declining international margins and slowing UK and Ireland margins.

Tesco chief executive Dave Lewis said the results showed the supermarket was 'ahead of where we expected to be at this stage' and defended the planned takeover of Booker, which has come under fire from some investors.

'Our prosed merger with Booker will bring together two complementary businesses, driving additional value for shareholders by realising substantial synergies and enabling us to access the faster growing "out of home" food market,' he said.

AJ Bell investment director Russ Mould said the Booker deal was continuing to weigh on Tesco shares. 'It is also depressing to see boss Dave Lewis justify the deal by citing "growth" without explaining growth in what,' he said.

'Many a takeover deal has been structured in a way that enhanced earnings per share but still destroyed shareholder value over the long term so the Tesco team will need a stronger justification than that when they make the case for the Booker deal to shareholders in both firms.'

The slump in Tesco shares spilled over to rival supermarkets, with Morrisons (MRW) down 2.2% at 230.9p and Sainsbury's (SBRY) falling 2.1% to 259.4p.

Miners also weighed on the FTSE 100, which dipped 11 points, or 0.2%, to 7,354. BHP Billiton (BLT) fell 2.5% to £12.81 as it rejected activist investor Elliot Advisors' demand for a corporate restructure.

Rio Tinto (RIO) was meanwhile down 2.7% at £31.85, Glencore (GLEN) fell 2% to 314p and Anglo American (AAL) dropped 1.9% to £11.96.

Among 'mid cap' stocks, PageGroup (PAGE) was the biggest riser, up 6.6% at 473.3p as the recruiter posted a forecast-beating record quarterly profit.

Booker was the biggest faller, down 5% at 192.1p and hurt by the slump in Tesco shares.

2 comments so far. Why not have your say?

FrankFrank

Apr 12, 2017 at 15:38

What a mess Tesco is! Hardly strong enough to stand on its trembling feet, yet trying to take over another firm. Like 70 year old man planning to marry a 25 year old girl.

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William Phillips

Apr 13, 2017 at 00:37

As a shareholder I would rather Mr Lewis concentrated on restoring the dividend before empire-building. That was the arrogance that led to scandal and downfall under his predecessor.

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