Tesco and Booker have stunned the industry this morning with the announcement of a £3.7bn merger plan.

The merger, which is subject to regulatory approval and also approval by Tesco and Booker shareholders, is described as being able to deliver synergies of £200m within three years, of which £175m will be cost and £25m revenue. Booker and Tesco estimate that 55% of the cost synergies (£96m) would come through improved buying power, with 35% realised through distribution and fulfilment. It would also give Tesco the obvious benefit of a strong presence in the out-of-home eating market.

The position of Booker retail customers in the new set-up is unclear, but initial statements surrounding the merger claimed that, outside of broad scale benefits, retail customers would see a significant improvement in delivery service via use of Tesco’s range and delivery fleet, plus access to Tesco banking and mobile services.

The presentation to business analysts described the move as “unlocking growth”, promising a more innovative offer for customers and consumers, as well as enhancing choice, price and service for independent retailers and small businesses.

Each Booker shareholder will receive 0.861 Tesco shares and 42.6p in cash per Booker share, which values Booker at £3.7bn and gives Booker shareholders approximately one sixth of the enlarged group.

On completion, Booker ceo Charles Wilson and chairman Stewart Gilliland will join the combined group’s board.

Retailers have begun reacting to the news on social media. Premier retailer Sam Coldbeck, of Wharfedale Convenience in Hull, tweeted: “With [chief executive] Charles Wilson at the helm of Booker, retailers will be in safe hands as we navigate Tesco waters. Exciting times.”

But Thornton’s Budgens in Belize Park London, owned by Andrew Thornton, tweeted: “Shocked by news that Tesco buying our wholesaler Booker. Will fight for all we stand for and to retain our independence.”

Further updates to follow.