U.S. activist investor says Booker should get better offer from Tesco

By Ben Martin

LONDON (Reuters) - A U.S. hedge fund which owns a stake in Booker Group (BOK.L) said on Thursday it plans to oppose Tesco's (TSCO.L) 3.7 billion pound takeover bid unless the wholesaler secures a better deal.

Sandell Asset Management said in a statement that it holds the equivalent of 1.75 percent of Booker and had expressed its concerns about the Tesco takeover in a letter to Booker's board.

Sandell believes that fair value for Booker shares is between 255 pence per share and 265 pence. That is above Booker's closing price of 221.5 pence on Thursday and the value of Tesco's bid when the deal was agreed in January 2017, when the cash-and-shares offer was worth 205.3 pence per share.

Sandell's criticism of the deal with Britain's biggest retailer comes ahead of a vote by Booker's shareholders to approve the takeover at a meeting due to be held on February 28. Booker needs the backing of 75 percent of its shareholders for the deal to proceed.

Tesco's acquisition of Britain's largest wholesaler would increase the supermarket operator's dominance of Britain's food market.

The deal has attracted criticism from elsewhere, with Tesco shareholders Schroders and Artisan Partners disclosing they were against the acquisition last March. A Tesco non-executive director, the late Richard Cousins, also quit the board of the retailer because he was opposed to the takeover.

Sandell said the premium Tesco offered to Booker, which was 12 percent at the time the deal was announced, was "well below the average" paid to British companies that have been bought in the last decade, which it said was about 25 percent.

The activist hedge fund also said that Tesco's vulnerability to online competitors meant its shares were "poor currency".

It argued that Booker should pay out all of its profits for its 2018 financial year in its closing dividend to shareholders, rather than as much as 65 percent as agreed with Tesco.

"In Booker, Tesco is getting a great asset and a great management team on the cheap," said Thomas Sandell, the founder of the hedge fund.

"Unless the consideration is increased, we do not believe that shareholders should vote in favour of the deal at the upcoming shareholder meeting."

Sandell, which also has offices in London, was set up in 1998 and its most notable campaign in Britain is an unsuccessful attempt to force transport company FirstGroup to break itself up in 2013.

Booker and Tesco declined to comment.

(Reporting by Ben Martin; editing by Alexander Smith and Elaine Hardcastle)