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Friday, August 28, 1998 Published at 09:19 GMT 10:19 UK

Business: The Company File

Somerfield calls off merger

Somerfield says the deal was too 'commercially risky'

Supermarket group Somerfield has called off merger talks with food distribution group Booker - just 11 days after negotiations started.

It said the commercial risks of the planned deal outweighed the rewards.

The merger would have seen the supermarket chain - which six months took over Kwik Save - and Booker combine to form a group worth around £3bn.

The deal would have made them Britain's third biggest retail company with a turnover of £11bn.

[ image: Somerfield took over Kwik Save six months ago]
Somerfield took over Kwik Save six months ago
But there has been mounting speculation that Somerfield could face a rival bid, with Budgens tipped as a possible partner for Booker.

In a statement to the Stock Exchange, Somerfield chief executive David Simons said: "We believe there are considerable strategic and economic benefits of merging Somerfield and Booker and therefore the proposed merger presented a great value opportunity for both sets of shareholders.

"I very much regret however, that we have had to conclude the commercial risks of the transaction for Somerfield shareholders outweigh the potential rewards."

Fresh merger speculation

Booker confirmed talks with Somerfield were off and said it was continuing to talk to another possible partner, though it declined to name the company.

A company spokesperson added: "Booker is continuing to implement its restructuring programme and to pursue other discussions.

"These include the evaluation of a proposal to effect a business combination of Booker with another public company on an all equity basis which would bring benefits to both sets of shareholders.

"Further announcements will be made when appropriate."

Impact of fall in share price

The breaking off of talks between Somerfield and Booker comes only days after the two sides were reported to be nearing completion of an agreement.

But progress on negotiations is thought to have been affected by a fall in Somerfield's share price, down from 422.5p when talks were announced to under 370p.

The share price fall has been partly triggered by the general slide in the stock market, but also by worries about the complexity of the merger so soon after Somerfield had bought up Kwik Save.

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