The groups will combine in a share and cash deal worth £3.7bn, after discussing a combination for almost a year. They said today that there are no job losses planned in connection with the merger.
Tesco boss Dave Lewis said he hoped the deal would complete by the end of 2017/early 2018, but said this was not set in stone as the transaction will need to be cleared by competition authorities.
Shares in Tesco were up over 10 per cent in early trading, while Booker's stock had risen 15 per cent.
FTSE 250-listed Booker claims it is "the UK's largest cash and carry operator, offering branded and private-label goods which are sold to over 503,000 customers including independent convenience stores, grocers, leisure outlets, pubs and restaurants". Among the businesses that form part of the Booker group are Booker Wholesale, Budgens, Londis and Makro. It supplies restaurants such as Wagamama and Carluccio's.
The wholesaler recently announced a 5.1 per cent increase in like-for-like sales in the last four months of 2016, and at the time, chief executive Charles Wilson said: "Our plans to focus, drive and broaden Booker Group are on track."
Wilson is to join the combined group's board and executive committee along with Booker's chairman.
The combined group
Tesco said the newly created group will be "well placed to serve the large, established 'in home' food market as well as the faster growing 'out of home' food market".
"By bringing together Tesco and Booker's retail and wholesale expertise, supply chain and digital capabilities, the combined group will be able to provide greater choice, quality, price and service in the food market, whilst improving efficiency and reducing food waste," Tesco said in its announcement.
"The combined group will bring together the capacity and capability to generate new growth and deliver significant revenue and cost synergies."
Tesco boss Lewis, who was parachuted in to get Tesco back on track in 2014 after the company was thrown into chaos by a massive profits overstatement, said the supermarket had made "significant progress in turning around our UK retail business" and said today's announcement was "another step in the strategy".
"It's a very complementary coming together of capabilities," he added. "What we are doing is following the customer. The market is evolving."
Wilson commented: "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."
Both groups' chief executives said they are not concerned about getting clearance from the competition watchdog.
Lewis said the fact that the deal was not an acquisition of stores would work in the companies' favour, and Wilson said: "We think this is a pro-competition deal."