Tesco's third-biggest shareholder has voiced its opposition to the grocer's £3.7bn acquisition of wholesaler Booker, owner of Budgens and Londis.
In a letter sent to Tesco chairman John Allan, Schroders asks him to withdraw from the proposed merger.
Schroders said in the letter:
All management teams believe that their acquisitions will create value. However, there is compelling academic and empirical evidence that, on average, acquisitions destroy value for acquiring shareholders.
We believe the high price being paid for Booker makes the destruction of value even more likely.
From 2007 to 2016 Booker's profits have increased from £36m to £153m and margins have risen from 1.2 per cent to 3.1 per cent; both are now at their highest ever levels. Tesco is paying over 23 times this peak operating profit, a multiple which will make the creation of shareholder value extremely challenging.
It has also encouraged other shareholders with the same views "to voice them".
The opposition has cast uncertainty over the deal which requires majority consent from Tesco shareholders. It also follows comments by the boss of the Association of Convenience Stores, who said the Competition and Markets Authority could put conditions on the deal, or stop it altogether.
Tesco has been approached for comment.
The move comes two years into Tesco's recovery from a £6.4bn loss and marks the first big purchase led by chief executive Dave Lewis.
Lewis has said he hopes the deal would be completed by the end of this year or early 2018, but that it would depend on clearance from competition authorities.