Tesco is to buy wholesaler Booker for £3.7bn, in a deal it claims will create "the UK's leading food business"

UK supermarket giant Tesco struck a deal to buy up wholesaler Booker to create what it claims will be Britain’s “leading food business”, it announced today.

The deal values Booker at 205.3p a share, or £3.7bn, a premium of 12 per cent over its closing price of 183.1p a share on January 26.

The Wholesaler Booker acquired grocery chains Budgens and Londis in 2015 and has over 170 cash and carry locations in the UK. Tesco said Booker shareholders will receive 42.6p in cash and 0.86 in new Tesco shares. The merger will result in Booker Wholesale shareholders owning 16 per cent of the combined company.

This could be seen as a negative acquisition by many independent retailers however as the wholesaler Booker supplies 5,463 Premier, Happy Shopper, Londis and Budgens convenience stores. The shopkeepers own the properties and manage their stores on a franchise basis. This uncertainty will surely leave many retailers worried.

“The Combined Group will bring benefits for consumers, independent retailers, caterers, small businesses, suppliers, and colleagues, as well as delivering significant value to shareholders”, said Tesco.

It is thought that while some shopkeepers are worried others see that there may be a benefit in that the Tesco deal will mean greater purchasing power and lower prices, there are growing fears among rivals about Tesco’s sprawling control of the nation’s grocery supply chain and their power to dictate to suppliers over pricing like in the marmite gate row earlier this year.

Retail property agents have suggested that Tesco will try to sell some stores where there are a number in the same location. One agent pointed out that it makes no sense to supply multiple stores in the same place, suggesting that Tesco would be "cannibalising" itself. Instead, it is likely to watch shoppers' habits over the next few months, and jettison the worst performing stores. While it can’t sell off franchised stores that it does not own, it could choose not to renew agreements with retailers. Could your franchise store be at risk?

If Tesco is true to its word, shoppers will have more choice when they visit their local convenience stores; Booker boss Charles Wilson pointed to the potential offered by the former’s “unbelievable” fresh food offer. The combined business will also have a network of 8,000 click and collect points, making it more convenient than ever to have someone else pick and pack your groceries. It remains to be seen whether the “synergies” promised by the deal will keep a lid on price rises, or whether the takeover will in fact give independent retailers less choice in who supplies their goods - and hand yet more power to Tesco.

Dave Lewis, Tesco’s chief executive 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".

Charles Wilson, boss of Booker said: "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."