Tesco's tie-up with Booker at risk after ISS recommends shareholders reject sale

ISS said it saw "limited potential benefit" from the merger, going as far as to say the deal "does not warrant support at the current terms".

The recent uptick in Booker's share price meant that Tesco "appears to be getting the better deal under the current terms", according to ISS, which said the recent moves could see Booker shareholders try to force the supermarket to up its offer.

"Although the combination is expected to result in substantial synergies, it appears that Booker shareholders will have limited potential benefit from those synergies," ISS said.

Sandell Asset Management, a US activist hedge fund that holds a 1.75% stake in Booker, claimed that Tesco was attempting to pick up Booker "on the cheap". It said that a fair value for the wholesaler was between 255p and 265p per share, significantly higher than the merger figure, which values Booker at 205.3p a share, a 12% premium to its closing price on the day before the merger was announced.

"In addition, the rationale for Booker shareholders to give up control appears less than compelling at the relatively low premium offered,"ISS said.

Tom Sandell, the fund's chief executive, said the ISS recommendation "validated" its position.

"If Tesco is unwilling to raise its offer to a fair level, we agree with ISS that Booker shareholders should reject the offer, and that the downside of walking away from the offer is limited," he said.

For the deal between the two to go ahead, it would require the approval of 75% of Booker's shareholders and 50% of Tesco's at a meeting set for 28 February.

At 1000 GMT, Booker and Tesco shares were up 0.5% to 225.10p and 204.80p, respectively.