LONDON, Jan 27 — Britain’s biggest retailer Tesco agreed today to buy wholesaler Booker for £3.7 billion (RM20.5 billion) in a surprise play to become the nation’s top food business, slash costs and take on German-owned discounters.

The purchase, worth US$4.7 billion or €4.4 billion, sent Tesco shares soaring and was hailed by analysts as a "crucial” moment for the supermarket giant and the broader retail sector.

Tesco, which has been troubled in recent years by an accounting scandal and fierce domestic competition from German discounters Aldi and Lidl, added today that it was seeking to "enhance” its growth prospects.

"Tesco has made significant progress in turning around our UK retail business,” said chief executive Dave Lewis.

"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 is the country’s biggest cash-and-carry operator and sells goods to more than 503,000 customers — including grocers, pubs and restaurants. It also owns convenience store chains Budgens, Londis and Premier, as well as trade-facing Makro and Booker Wholesale.

Tesco expects annual pretax synergies of at least £200 million within three years of completion. It also aims to achieve £175 million of extra cost savings in areas like distribution and procurement.

The cash-and-shares transaction will hand Booker 16 per cent of the new company. Booker investors will receive 0.861 new Tesco share and 42.6 pence in cash for every share they own.

"Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve,” added Booker chief executive Charles Wilson.

"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 — worth 205.3 pence per share — represents a 12 per cent premium on Booker’s closing share price on Thursday. It is expected to complete in late 2017 or early 2018, subject to shareholder and regulatory approvals.

"What we are doing is bringing together two very complementary businesses which have a focus on food and a focus on customers,” Dave Lewis told BBC radio.

‘Crucial’ moment for industry

In late morning deals, Tesco shares rallied 10.05 per cent to 208 pence on London’s flat stock market as investors applauded the move.

"Tesco shares soared after it announced plans to merge with Booker Group, a major strategic play for the UK’s largest retailer at a crucial moment for the industry and in its turnaround process,” said ETX Capital analyst Neil Wilson.

"At first glance Tesco’s merger with Booker makes perfect sense. Tie up the end-to-end wholesale/retail business and make savings in the process.”

In recent years, meanwhile, Britain’s "Big Four” supermarkets — comprising Tesco, WalMart division Asda, Sainsbury’s and Morrison — have lost market share to Aldi and Lidl.

German discount chains boomed as customers tightened their belts during the downturn, and remain popular despite the economy’s steady recovery.

"Tesco is also taking on the discounters like Aldi and Lidl,” added Wilson.

"Like the rest of the ‘Big Four’ supermarkets, Tesco has been squeezed by discounters and is fighting back.

"We have already seen discounter growth and market share flattening off and this could continue.” — AFP