FDBusiness.com

The boards of Tesco, the UK’s leading food retailer, and Booker Group, the UK’s leading food wholesaler, have reached an agreement on the terms of a recommended share and cash merger to create the UK’s leading food business. The combined group will be well placed to serve the large, established ‘in home’ food market as well as the faster growing ‘out of home’ food market.

By bringing together Tesco and Booker’s retail and wholesale expertise, supply chain and digital capabilities, the combined group will be able to provide greater choice, quality, price and service in the food market, whilst improving efficiency and reducing food waste. The combined group will bring together the capacity and capability to generate new growth and deliver significant revenue and cost synergies.

Dave Lewis, chief executive of Tesco.

Dave Lewis, chief executive of Tesco, comments: “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.”

Charles Wilson, chief executive of Booker, says: “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.”

The deal places a value of approximately £3.7 billion for Booker’s ordinary share capital. The merger will result in Booker Shareholders owning approximately 16% of the combined group (based on the existing issued ordinary share capital of Tesco and Booker) and sharing in the benefits accruing to the combined group via attractive growth prospects and the realisation of significant revenue and cost synergies.

The Tesco board expects pre-tax synergies for the combined group to reach a run-rate of at least £200 million per annum by the end of the third year following completion of the merger. Quantified revenue synergies of at least £25 million per annum are anticipated to come by the end of the third year following completion of the merger, primarily from an enhanced offering and customer proposition. The merger is also expected to enable opportunity for cost synergies of at least £175 million, mainly in areas such as procurement and distribution.