Tesco and food wholesaler Booker have unveiled plans to merge in a deal that values the Londis and Budgens owner at £3.7bn.
The firms said the deal will create “the UK’s leading food business,” which would “create benefits” for consumers, independent retailers, small business, suppliers and colleagues.
In a joint statement to the Stock Exchange this morning, the businesses added the combined group would be able to provide “greater choice, quality, price and service” in both the in-home and out-of-home food markets.
Tesco and Booker said the deal would bring together the companies’ “capacity and capability” in order to generate growth and deliver “significant” revenue and cost synergies.
The statement said the enlarged group will be able to deliver “better availability of quality food at attractive prices” and “create attractive innovation opportunities” in order to serve its customers better.
Tesco expects pre-tax synergies for the combined group to reach at least £200m per annum by the end of the third year following completion of the merger.
The supermarket giant’s board said it expects opportunities for cost synergies of at least £175m from areas such as procurement and distribution, with a further £25m per year coming from “an enhanced offering and customer proposition”.
Under the terms of the merger, each Booker shareholder will receive 0.861 new Tesco shares and 42.6p in cash per share.
Based on Tesco’s closing share price of 189p yesterday, the merger values Booker at approximately £3.7bn, or 205.3p per share – a premium of around 12% on its closing price of 183.1p.
Tesco boss Dave Lewis said: “Tesco has made significant progress in turning around our UK retail business.
“This merger with Booker will further enhance Tesco’s growth prospects by creating the UK’s leading food business with combined expertise in retail, wholesale, supply chain and digital.
“Wherever food is prepared and eaten – ‘in home’ or ‘out of home’ – we will meet this opportunity with the widest choice and best service available.”
Booker boss Charles Wilson added: “Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve.
“We believe that joining forces with Tesco offers the potential to bring major benefits to end consumers, our customers, suppliers, colleagues and shareholders.”
Wilson will join the combined group’s board and executive committee, while Booker chairman Stewart Gilliland will also become a member of the enlarged board.