Tesco is offering 0.861 Tesco shares plus 42.6p in cash for each Booker share, valuing Booker at around £3.7bn and each Booker share at around 205.3p. Booker shareholders will get to keep various planned dividend payments, adding around 8p a share to the value of the offer.
Booker shares closed at 183.1p last night.
If it goes through, the merger will result in Booker shareholders owning around 16% of Tesco.
Tesco said pre-tax synergies for the combined group are expected to reach a run-rate of at least £200 million a year by the end of the third year following completion of the merger.
Quantified revenue synergies of at least £25 million a year are anticipated to come by the end of the third year, with a shed-load of more revenue synergies expected to be derived from the merger of Tesco's supermarkets and Booker's businesses, which include the Budgens and Londis brands.
The merger is also expected to enable opportunity for cost synergies of at least £175 million, mainly in areas such as procurement and distribution, Tesco said.
Reflecting Tesco's improved performance the Tesco board has reviewed its dividend policy and intends to recommence paying dividends in respect of the financial year 2017/18.
Tesco expects dividends to grow progressively with the aim of achieving a pay-out in the medium term that is around half the level of earnings per share.
“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," said Dave Lewis, the chief executive officer (CEO) of Tesco.
Booker's CEO, Charles Wilson, 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."
Wilson and Booker's chairman. Stewart Gilliland, will join the Tesco board on completion of the merger.
Shares in Booker rose 15.1% to 210.7p while Tesco's shares hardened 9.5% to 207p.