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1 Proof 5 Sunday, February 4, :12 THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this Circuar or the action you shoud take, it is recommended that you seek your own independent financia advice immediatey from your stockbroker, bank manager, soicitor, accountant or independent financia adviser (who is, if you are resident in the UK, duy authorised under FSMA or, if not, from another appropriatey authorised independent financia adviser). If you se or have sod or otherwise transferred a of your Existing Tesco Shares, pease send this Circuar (together with the accompanying documents) as soon as possibe to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sae or transfer was effected for deivery to the purchaser or the transferee. If you se or have sod or otherwise transferred ony part of your hoding of Existing Tesco Shares, you shoud retain this Circuar and any accompanying documents and consut with the bank, stockbroker or other agent through whom the sae or transfer was effected as to the action you shoud take. However, neither this Circuar nor any accompanying documents shoud be reeased, pubished, distributed, forwarded or transmitted, in whoe or in part, in, into or from any jurisdiction in which to do so woud constitute a breach of the reevant aws of such jurisdiction. Any person (incuding, without imitation, custodians, nominees and trustees) who may have a contractua or ega obigation or may otherwise intend to forward this Circuar and any accompanying documents to any jurisdiction outside the UK, shoud seek appropriate advice before taking such action. The distribution of this Circuar and any accompanying documents into jurisdictions other than the UK may be restricted by aw. Any person not in the UK, into whose possession this Circuar and any accompanying documents come shoud inform themseves about and observe any such restrictions. Any faiure to compy with these restrictions may constitute a vioation of the securities aws of any such jurisdiction. In particuar, this Circuar and any accompanying documents shoud not be reeased, pubished, distributed, forwarded or transmitted, in whoe or in part, in, into or from any jurisdiction where oca aws or reguations may resut in a significant risk of civi, reguatory or crimina exposure if information concerning the Merger is sent or made avaiabe to Booker Sharehoders in that jurisdiction. This Circuar shoud be read in conjunction with the Prospectus reating to Tesco dated 5 February 2018 in connection with the Merger and which has been pubished on Tesco s website at This Circuar does not constitute or form part of any offer or invitation to purchase, otherwise acquire, subscribe for, se, otherwise dispose of or issue, or any soicitation of any offer to se, otherwise dispose of, issue, purchase, otherwise acquire or subscribe for, any security. (incorporated and registered in Engand and Waes with registered number ) Recommended share and cash merger of Tesco and Booker Circuar to Tesco Sharehoders and Notice of the Tesco Genera Meeting This Circuar shoud be read as a whoe. Your attention, in particuar, is drawn to the risk factors set out in Part II (Risk Factors) and to the etter from your Chairman, which is set out in Part I (Letter from the Chairman) and which contains the unanimous recommendation of the Tesco Board that you vote in favour of the Tesco Resoutions to be proposed at the Tesco Genera Meeting. Notice of the Tesco Genera Meeting to be hed at etc.venues St Pau s, 200 Adersgate, St Pau s, London, EC1A 4HD at a.m. on 28 February 2018 is set out at pages 78 to 81 of this Circuar.

2 Proof 5 Sunday, February 4, :12 The actions to be taken in respect of the Tesco Genera Meeting are set out in paragraph 19 of Part I (Letter from the Chairman) of this document. Sharehoders wi find encosed with this document a Proxy Form for use in connection with the Tesco Genera Meeting. Whether or not you intend to attend the Tesco Genera Meeting in person, pease compete and sign the Proxy Form (or appoint a proxy eectronicay, as referred to beow) in accordance with the instructions printed on it and return it to Tesco s Registrars, Equiniti Limited, as soon as possibe and, in any event, so as to be received no ater than 48 hours (excuding any part of a day that is not a working day) prior to the time appointed for the hoding of the Tesco Genera Meeting. Competion and return of a Proxy Form wi not precude Sharehoders from attending and voting in person at the Tesco Genera Meeting, shoud they so wish. If you hod Tesco Shares in CREST, you may appoint a proxy by having an appropriate CREST message transmitted. Proxies sent eectronicay must be sent as soon as possibe and, in any event, so as to be received by not ater than a.m. on 26 February 2018 (or, in the case of an adjournment, not ater than 48 hours (excuding non-working days) before the time fixed for the hoding of the adjourned meeting). Competion and return of a Proxy Form (or the eectronic appointment of a proxy) wi not precude Sharehoders from attending and voting in person at the Tesco Genera Meeting or any adjournment thereof, shoud they so wish and are so entited. If you have any questions about this document, the Tesco Genera Meeting or on the competion and return of the Proxy Form, pease ca the Tesco Sharehoder Hepine between 8.30 a.m. and 5.30 p.m. (UK time) Monday to Friday (pubic hoidays excepted) on (cas to this number are charged at nationa rates, cas from a mobie device may incur network extras) or on from outside the UK. Equiniti may record cas to both numbers for security purposes and to monitor the quaity of its services. The Tesco Sharehoder Hepine cannot provide advice on the merits of the Merger or give any financia, ega or tax advice. This Circuar and the accompanying documents have been prepared to compy with Engish aw and appicabe reguations and the information discosed may not be the same as that which woud have been discosed if this Circuar or the accompanying documents had been prepared in accordance with the aws of jurisdictions outside the UK. Greenhi, which is authorised and reguated in the UK by the FCA, is acting excusivey for Tesco and no one ese in connection with the Merger and wi not be responsibe to anyone other than Tesco for providing the protections afforded to cients of Greenhi nor for providing advice in reation to the Merger or any other matters referred to in this Circuar. Neither Greenhi nor any of its affiiates owes or accepts any duty, iabiity or responsibiity whatsoever (whether direct or indirect, whether in contract, tort or, under statute or otherwise) to any person who is not a cient of Greenhi in connection with this Circuar, any statement contained herein, the Merger or otherwise. Barcays, which is authorised in the UK by the PRA and reguated by the FCA and the PRA in the UK, is acting excusivey for Tesco and no one ese in connection with the Merger and wi not be responsibe to anyone other than Tesco for providing the protections afforded to cients of Barcays nor for providing advice in reation to the Merger or any other matters referred to in this Circuar. Citi, which is authorised by the PRA and reguated by the PRA and the FCA, is acting excusivey for Tesco and no one ese in connection with the Merger and wi not be responsibe to anyone other than Tesco for providing the protections afforded to its cients for providing advice in reation to the Merger or in reation to the contents of this Circuar or any transaction or any other matters referred to herein. Davy, which is authorised and reguated by the Centra Bank of Ireand, is acting excusivey for Tesco and no one ese in connection with the Merger and wi not be responsibe to anyone 2

3 Proof 5 Sunday, February 4, :12 other than Tesco for providing the protections afforded to its cients for providing advice in reation to the Merger or in reation to the contents of this Circuar or any transaction or any other matters referred to herein. Apart from the responsibiities and iabiities, if any, which may be imposed on Greenhi, Barcays, Citi and Davy by FSMA or the reguatory regime estabished thereunder, or under the reguatory regime of any jurisdiction where the excusion of iabiity under the reevant reguatory regime woud be iega, void or unenforceabe, none of Greenhi, Barcays, Citi, or Davy nor any of their respective subsidiaries, branches or affiiates owes or accepts any duty, iabiity or responsibiity whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a cient of Greenhi, Barcays Citi or Davy, for the contents of this Circuar, incuding its accuracy, correctness or for any other statement made or purported to be made by it, or on its behaf in connection with Tesco, the Tesco Group, the Combined Group, the Merger and any other matters referred to in this Circuar and nothing in this Circuar is to be reied upon as a promise or representation in this respect, whether or not to the past or future. Save for the aforementioned responsibiities and iabiities, if any, which may be imposed under FSMA, Greenhi, Barcays, Citi and Davy and each of their respective subsidiaries, branches and affiiates accordingy discaim a and any responsibiity or iabiity, whether arising in tort, contract or otherwise which it might otherwise have in respect of this Circuar or any other statement. Any reproduction or distribution of this Circuar, in whoe or in part, and any discosure of its contents or use of any information contained in this Circuar for any purpose other than considering the terms of the Merger is prohibited. Avaiabiity of hard copies If you have received this document in eectronic form or have been notified that this document is avaiabe to view on the Tesco website ( you may request a hard copy of this document and/or any information incorporated by reference into this document by caing the Tesco Sharehoder Hepine between 8.30 a.m. and 5.30 p.m. (UK time) Monday to Friday (pubic hoidays excepted) on (cas to this number from a andine are charged at nationa rates, cas from a mobie device may incur network extras) or on from outside the UK. Equiniti may record cas to both numbers for security purposes and to monitor the quaity of its services. The Tesco Sharehoder Hepine cannot provide advice on the merits of the Merger or give any financia, ega or tax advice. You may aso request that a future documents, announcements and information to be sent to you in reation to the Merger shoud be in hard copy form. Copies of this Circuar and any document or information incorporated by reference into this document wi not be provided uness such a request is made and you are urged to consider the impact on the environment before making such request. Information regarding forward-ooking statements This Circuar (incuding information incorporated by reference into this Circuar) incudes forward-ooking statements. These forward-ooking statements invove known and unknown risks and uncertainties, many of which are beyond the Tesco Group s, the Booker Group s or the Combined Group s contro and a of which are based on the Tesco Directors current beiefs and expectations about future events. Forward-ooking statements are sometimes identified by the use of forward-ooking terminoogy such as beieve, expects, may, wi, coud, shoud, sha, risk, intends, estimates, aims, pans, predicts, continues, assumes, positioned, anticipates, confident, reaisation, consider or targets or the negative thereof, other variations thereon or comparabe terminoogy. These forward-ooking statements incude a matters that are not historica facts. They appear in a number of paces throughout this Circuar and incude statements regarding the intentions, beiefs or current expectations of the directors concerning, among other things, the future resuts of operations, financia condition, prospects, growth, strategies, and dividend poicy of the Tesco Group, the Booker Group or the Combined Group and the industry in which they operate or wi operate. 3

4 Proof 5 Sunday, February 4, :12 These forward-ooking statements and other statements contained in this Circuar regarding matters that are not historica facts invove predictions. No assurance can be given that such future resuts wi be achieved; actua events or resuts may differ materiay as a resut of risks and uncertainties facing the Tesco Group, the Booker Group or the Combined Group. Such risks and uncertainties coud cause actua resuts to vary materiay from the future resuts indicated, expressed, or impied in such forward-ooking statements. Such forward-ooking statements contained in this Circuar speak ony as of the date of this Circuar. Tesco, the Tesco Directors, the Proposed Directors, Booker and the Financia Advisers expressy discaim any obigation or undertaking to update these forward-ooking statements contained in the document to refect any change in their expectations or any change in events, conditions, or circumstances on which such statements are based uness required to do so by appicabe aw, the Listing Rues, the Prospectus Rues or the Discosure Guidance and Transparency Rues of the FCA. Information not contained in this Circuar No person has been authorised to give any information or make any representations other than those contained in this Circuar, the Prospectus and the documents (or parts thereof) incorporated by reference herein and, if given or made, such information or representations must not be reied upon as having been authorised by Tesco, the Tesco Directors, the Proposed Directors, Greenhi, Barcays, Citi or Davy, or any other person invoved in the Merger. Neither the deivery of this Circuar nor UK Admission nor Irish Admission sha, under any circumstances, create any impication that there has been no change in the affairs of Tesco since the date of this Circuar or that the information in this document is correct as at any time subsequent to its date. In particuar, the contents of Tesco s and Booker s websites do not form part of this Circuar and Tesco Sharehoders shoud not rey on them. No profit forecast Save as expressy set out in this Circuar, no statement is intended as a profit forecast or a profit estimate and no statement in this document shoud be interpreted to mean that earnings per Tesco Share for the current or future financia years woud necessariy match or exceed the historica pubished earnings per Tesco Share. Booker Group s Aternative Performance Measure (non-ifrs metrics) The Booker Group has adopted the foowing metric, which is considered to give an understanding of the Booker Group s underying performance drivers. This measure is referred to as an aternative performance measure (as defined in the ESMA Guideines on Aternative Performance Measures) ( APMs ). The APM described beow is not a measure of financia performance under generay accepted accounting principes, incuding IFRS, and shoud not be considered in isoation or as an aternative to the primary financia information reating to the Booker Group referred to in Part III (Historica Financia Information in reation to Booker and the Booker Group) of this Circuar. Because this measure is not determined in accordance with generay accepted accounting principes and is thus susceptibe to varying cacuations, it may not be comparabe with other simiary tited measures of performance of other companies. Like-for-ike saes Like-for-ike saes is a measure of change in saes from UK operations from prior year to current year. No adjustments to saes are made when individua customers are gained or ost. If a Booker Group business centre is cosed, for the tweve months foowing the cosure date the saes of the business centre are removed from the prior comparative. If saes are transferred to a repacement business centre in the same vicinity no such adjustment is made. If a business centre is opened where none previousy existed, a saes for the first tweve months wi be 4

5 Proof 5 Sunday, February 4, :12 excuded. Where a business is acquired, saes are excuded unti the anniversary of the acquisition. The reconciiation of Booker s resuts from revenue to ike-for-ike saes in respect of the 52 weeks ended 25 March 2016 and the 52 weeks ended 24 March 2017 is as foows: 52 weeks 52 weeks ended ended 25 March 24 March m m Revenue... 4, ,327.9 Less: India (1) BRP acquisition (2) Cosed branches (3) Like-for-ike saes... 4, ,969.4 The reconciiation of Booker s resuts from revenue to ike-for-ike saes in respect of the 24 weeks ended 9 September 2016 and the 24 weeks ended 8 September 2017 is as foows: 24 weeks 24 weeks ended ended 9 September 8 September m m Revenue... 2, ,587.3 Less: India (1) BRP acquisition (2) Cosed branches (3) Like-for-ike saes... 2, ,573.5 Notes: (1) India saes are deducted for a periods to excude the impact of saes from non-uk operations. (2) On 14 September 2015, the Booker Group acquired the entire issued share capita of Musgrave Retai Partners GB Limited (together with its subsidiaries, incuding Budgens and Londis), which subsequenty changed its name to Booker Retai Partners (GB) Limited ( BRP ). Saes attributabe to the BRP acquisition are excuded unti the anniversary of the acquisition. (3) Saes for cosed branches are excuded from the 52 weeks ended 25 March 2016, the 24 weeks ended 9 September 2016 and the 52 weeks ended 24 March Currencies/exchange rate information Uness otherwise indicated, a references in this Circuar to stering, pounds stering, GBP,, or pence are to the awfu currency of the UK. A references to the euro or are to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty estabishing the European Community, as amended. A references to US doars or $ are to the awfu currency of the United States. The average exchange rates of US doars and euros are shown reative to pounds stering beow. The rates beow may differ from the actua rates used in the preparation of the financia statements and other financia information that appears esewhere in this Circuar. The incusion of these exchange rates is for iustrative purposes ony and does not mean that the stering amounts actuay represent such US doar or euro amounts or that such stering amounts coud have been converted into US doars or euro at any particuar rate, if at a. 5

6 Proof 5 Sunday, February 4, :12 Average rate against pounds stering US doar Period End Year Ending Average High Low (through 31 January 2018) Period End Year Ending Average High Low (through 31 January 2018) Source: Boomberg Euro TESCO SHAREHOLDER HELPLINE: (cas to this number from a andine are charged at nationa rates, cas from a mobie device may incur network extras) (FROM OUTSIDE THE UK) LINES ARE OPEN 8.30 A.M. TO 5.30 P.M. (UK TIME), MONDAY TO FRIDAY (PUBLIC HOLIDAYS EXCEPTED) EQUINITI MAY RECORD CALLS TO BOTH NUMBERS FOR SECURITY PURPOSES AND TO MONITOR THE QUALITY OF ITS SERVICES. THE TESCO SHAREHOLDER HELPLINE CANNOT PROVIDE ADVICE ON THE MERITS OF THE MERGER OR GIVE ANY FINANCIAL LEGAL OR TAX ADVICE. THE CONTENTS OF THIS DOCUMENT OR ANY SUBSEQUENT COMMUNICATION FROM TESCO OR ITS SPONSOR OR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS ARE NOT TO BE CONSTRUED AS LEGAL, FINANCIAL OR TAX ADVICE. TESCO IS NOT AUTHORISED TO PROVIDE SUCH ADVICE. EACH TESCO SHAREHOLDER SHOULD CONSULT HIS, HER OR ITS OWN SOLICITOR, STOCKBROKER, BANK MANAGER, INDEPENDENT FINANCIAL ADVISER OR TAX ADVISER OR OTHER INDEPENDENT PROFESSIONAL ADVISER AUTHORISED UNDER FSMA IF YOU ARE RESIDENT IN THE UK OR, IF YOU RESIDE ELSEWHERE, ANOTHER APPROPRIATELY AUTHORISED FINANCIAL ADVISER, FOR LEGAL, FINANCIAL OR TAX ADVICE. This Circuar is dated 5 February

7 Proof 5 Sunday, February 4, :12 TABLE OF CONTENTS RELEVANT DOCUMENTATION 9 EXPECTED TIMETABLE OF PRINCIPAL EVENTS 10 INDICATIVE MERGER STATISTICS 12 TESCO DIRECTORS, PROPOSED DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS 13 PART I LETTER FROM THE CHAIRMAN 15 PART II RISK FACTORS 35 PART III HISTORICAL FINANCIAL INFORMATION IN RELATION TO BOOKER AND THE BOOKER GROUP 40 PART IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE COMBINED GROUP 42 PART V TESCO QUANTIFIED FINANCIAL BENEFITS STATEMENT 48 PART VI TESCO PROFIT FORECAST 53 PART VII ADDITIONAL INFORMATION 59 PART VIII DEFINITIONS 70 PART IX TESCO PLC NOTICE OF GENERAL MEETING 78 PART X DIVIDENDS 82 7

8 Proof 5 Sunday, February 4, :12 RELEVANT DOCUMENTATION, EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND INDICATIVE STATISTICS 8

9 Proof 5 Sunday, February 4, :12 RELEVANT DOCUMENTATION A prospectus in connection with the issue of the New Tesco Shares has been pubished by Tesco on its website at and contains information regarding, among other things, the reasons for the Merger, further detais concerning Tesco and Booker, historica financia information, the Tesco Directors, the Proposed Directors and the New Tesco Shares. The Tesco Prospectus is avaiabe for inspection in accordance with paragraph 14 of Part VII (Additiona Information) of this Circuar. Paragraph 14 of Part VII (Additiona Information) of this Circuar sets out the various sections of the Tesco Prospectus which are incorporated by reference into this document. Ony the parts of the documents identified therein are incorporated by reference in, and form part of, this Circuar. The parts of the Prospectus which are not incorporated by reference are either not reevant for investors or are covered esewhere in this Circuar. 9

10 Proof 5 Sunday, February 4, :12 EXPECTED TIMETABLE OF PRINCIPAL EVENTS PRINCIPAL EVENTS TIME AND/OR DATE (1) Expected timetabe of principa events Event Time and Date Prospectus and Circuar pubished 5 February 2018 Scheme Document pubished 5 February 2018 Latest time and date for receipt of proxy forms and voting instructions for Tesco Genera Meeting a.m. on 26 February 2018 (2) Latest time and date for receipt of proxy forms and voting instructions for Booker Court Meeting p.m. on 26 February 2018 Latest time and date for receipt of proxy forms and voting instructions for Booker Genera Meeting p.m. on 26 February 2018 Tesco Genera Meeting hed a.m. on 28 February 2018 Booker Court Meeting hed p.m. on 28 February 2018 Booker Genera Meeting hed p.m. on 28 February 2018 (3) High court hearing to sanction Scheme 2 March 2018 (4) Last day for deaings in, and for registration of transfers of, and disabement in CREST of, Booker Shares 2 March 2018 (4) Scheme Record Time and record time with respect to the Cosing Dividend 6.00 p.m. on 2 March 2018 (4) Effective Date of the Scheme by no ater than 8.00 a.m. on 5 March 2018 (4) Announcement concerning the extent to which eections under the Mix and Match Faciity wi be satisfied 5 March 2018 (4) Issue, admission and commencement of deaings of New Tesco Shares on the London Stock Exchange and the Irish Stock Exchange by 8.00 a.m. on 5 March 2018 (4) Deisting of Booker Shares 5 March 2018 (4) Crediting of New Tesco Shares to CREST accounts within 14 days of the Effective Date (4) Despatch of share certificates for New Tesco Shares within 14 days of the Effective Date (4) Despatch of cash consideration to Booker Scheme Sharehoders within 14 days of the Effective Date (4) Longstop Date 30 November 2018 (5) A times are UK times. Each of the times and dates in the above timetabe is subject to change without further notice. 10

11 Proof 5 Sunday, February 4, :12 Notes: (1) The dates and times given are indicative ony and are based on current expectations and may be subject to change. (2) Ony persons entered in the register of members of Tesco at 6.30 p.m. on 26 February 2018 or, in the event that the meeting is adjourned, 6.30 p.m. on the date which is two working days prior to the reconvened meeting, sha be entited to attend, speak and vote at the meeting. Changes to entries on the register after this time sha be disregarded in determining the rights of any person to attend, speak and vote at the meeting or adjourned meeting. (3) To commence at the time fixed or, if ater, immediatey after the concusion of the Booker Court Meeting. (4) The expected date of the Court hearing to sanction the Scheme and each of the subsequent dates set out in the timetabe coud be subject to change to earier or ater dates. These dates wi depend, among other things, on the date on which: (i) the Conditions to the Scheme are satisfied or, if capabe of waiver, waived; (ii) the Court sanctions the Scheme; and (iii) a copy of the Court order is deivered to the Registrar of Companies. (5) This is the atest date by which the Scheme may become effective uness Tesco and Booker agree, and (if required) the Court and the Takeover Pane aow, a ater date. 11

12 Proof 5 Sunday, February 4, :12 INDICATIVE MERGER STATISTICS Indicative Merger statistics Consideration to be paid for each Booker Scheme Share New Tesco Shares and 42.6 pence Number of Tesco Shares in issue as at 1 February 2018 (being the Latest Practicabe Date) 8,191,798,719 Number of Tesco Shares to be issued pursuant to the Merger 1,543,080,084 New Tesco Shares as a percentage of the Tesco ordinary share capita in issue immediatey foowing Admission (1) approximatey 16 per cent. (1) Number of Tesco Shares in issue immediatey foowing issue of Merger consideration 9,734,878,803 (2) Notes: (1) Based on Tesco s issued share capita at the date of this Circuar. (2) On the assumption that no further Tesco Shares are issued between 1 February 2018 (being the Latest Practicabe Date) and Admission. 12

13 Proof 5 Sunday, February 4, :12 TESCO DIRECTORS, PROPOSED DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS Tesco Directors Proposed Directors Company Secretary Registered and head office of Tesco Lead Financia Adviser Financia Adviser, Corporate Broker and Sponsor Financia Adviser, Corporate Broker Irish Sponsor Engish ega advisers to Tesco John Aan CBE (Non-executive Chairman) Dave Lewis (Group Chief Executive) Aan Stewart (Chief Financia Officer) Deanna Oppenheimer (Senior Independent Director) Mark Armour (Independent Non-executive Director) Steve Gosby (Independent Non-executive Director) Byron Grote (Independent Non-executive Director) Mikae Osson (Independent Non-executive Director) Simon Patterson (Independent Non-executive Director) Aison Patt (Independent Non-executive Director) Lindsey Powna OBE (Independent Non-executive Director) Stewart Giiand (Independent Non-executive Director) Chares Wison (Executive Director) Robert Wech Tesco House Shire Park Kestre Way Wewyn Garden City AL7 1GA UK Greenhi & Co. Internationa LLP Lansdowne House 57 Berkeey Square London W1J 6ER UK Barcays Bank PLC, acting through its Investment Bank 5 The North Coonnade Canary Wharf London E14 4BB UK Citigroup Goba Markets Limited Citigroup Centre Canada Square Canary Wharf London E14 5LB UK J&E Davy Davy House 49 Dawson Street Dubin 2 Ireand Freshfieds Bruckhaus Deringer LLP 65 Feet Street London EC4Y 1HS UK 13

14 Proof 5 Sunday, February 4, :12 Engish ega advisers to the Sponsor Reporting Accountants and Auditors Registrars Herbert Smith Freehis LLP Exchange House Primrose Street London EC2A 2EG UK Deoitte LLP 2 New Street Square London EC4A 3BZ UK Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA UK 14

15 Proof 5 Sunday, February 4, :14 Part I Letter from the Chairman Registered Office Tesco House Shire Park Kestre Way Wewyn Garden City AL7 1GA United Kingdom To Tesco Sharehoders and, for information ony, to persons with information rights Dear Sharehoder Recommended share and cash merger of Tesco PLC and Booker Group pc and Notice of Genera Meeting 5 February Introduction On 27 January 2017, the boards of Tesco and Booker announced that they had reached agreement on the terms of a recommended share and cash merger of Tesco and Booker (the Merger ). The Merger is intended to be impemented by way of a Court-sanctioned scheme of arrangement under Part 26 of the Act. Further detais of the Merger are set out beow. Foowing the unconditiona cearance of the Merger by the CMA announced on 20 December 2017, I am now writing to you to provide you with an expanation of the background to and reasons for the Merger and to expain further why the Tesco Board considers the Merger to be in the best interests of our sharehoders as a whoe and unanimousy recommends that you vote in favour of the Tesco Resoutions, as the Tesco Directors have irrevocaby undertaken to do in respect of their own individua hodings. 2. Summary of the terms of the Merger Under the terms of the Merger, which is conditiona on the Conditions (as described beow) and subject to the further terms and conditions set out beow and in the Scheme Document, Booker Scheme Sharehoders at the Scheme Record Time wi be entited to receive: For each Booker Scheme Share: New Tesco Shares; and 42.6 pence in cash. Based on the Cosing Price of pence per Tesco Share on the Latest Practicabe Date, the terms of the Merger vaues each Booker Share at pence and Booker s existing issued ordinary share capita at approximatey 3.9 biion. The Merger wi resut in Booker Sharehoders owning approximatey 16 per cent. of the Combined Group (based on the existing issued ordinary share capita of Tesco and Booker) and sharing in the benefits accruing to the Combined Group via its attractive growth prospects and the reaisation of significant revenue and cost synergies. As a resut, the voting rights of Existing 15

16 Proof 5 Sunday, February 4, :14 Tesco Sharehoders wi be diuted, such that the Existing Tesco Sharehoders woud, immediatey after the Effective Date, hod voting rights of approximatey 84 per cent. of the tota voting rights that they had hed immediatey prior to competion. Pease see paragraph 16 of this Part I (Letter from the Chairman) for detais of how the diution statistics are cacuated. On competion of the Merger, the Booker non-executive directors wi resign as directors of Booker and Chares Wison, Booker s Chief Executive, and Stewart Giiand, Chairman of Booker, wi join the Combined Group s Board. Chares Wison wi aso join the Combined Group s Executive Committee and wi be appointed as CEO of Tesco s retai and whoesae operations in the UK & ROI. Matt Davies wi continue as CEO of UK & ROI unti competion of the Merger, when he wi step down and after supporting a handover, wi eave the Tesco Group at the end of Apri A summary of the terms of empoyment of Chares Wison and Stewart Giiand is incuded at paragraph 5 of Part VII (Additiona Information). Tesco wi aso provide a Mix and Match Faciity (as further described beow), which wi aow Booker Sharehoders to eect, subject to off-setting eections, to vary the proportions in which they receive New Tesco Shares and cash. The Mix and Match Faciity wi not change the tota number of New Tesco Shares to be issued or the maximum amount of cash that wi be paid under the terms of the Merger. The New Tesco Shares wi be issued credited as fuy paid and wi rank pari passu in a respects with Tesco ordinary shares in issue at the time the New Tesco Shares are issued pursuant to the Merger, incuding the right to receive and retain dividends and other distributions decared, made or paid by reference to a record date faing on or after the Effective Date. Appications have been made: (a) to the FCA for the New Tesco Shares to be admitted to the premium isting segment of the UK Officia List; (b) to the London Stock Exchange for the New Tesco Shares to be admitted to trading on its main market for isted securities; and (c) to the Irish Stock Exchange for the New Tesco Shares to be admitted to isting on the secondary isting segment of the Irish Officia List and to trading on the Irish Stock Exchange s main market for isted securities. The Booker Shares wi be acquired pursuant to the Merger fuy paid and free from a iens, equitabe interests, charges, encumbrances, rights of pre-emption and other third party rights of any nature whatsoever and together with a rights attaching to them as at the date of the Merger Announcement or subsequenty attaching or accruing to them, save for any Permitted Booker Dividends. Mix and Match Faciity Booker Sharehoders (other than certain Booker Sharehoders who are resident in, ordinariy resident in, or citizens of, jurisdictions outside the UK or the United States) wi be entited to eect to vary the proportions in which they receive New Tesco Shares and cash in respect of their hodings of Booker Shares. However, the tota number of New Tesco Shares that wi be issued and the maximum amount of cash that wi be paid under the terms of the Merger wi not be varied as a resut of eections made under the Mix and Match Faciity. In connection with the Mix and Match Faciity, Chares Wison, the Chief Executive of Booker and a Proposed Director, has irrevocaby undertaken to eect to receive 100 per cent. New Tesco Shares in respect of his entire hoding of Booker Shares, subject to the eections of other Booker Sharehoders. Eections made by Booker Sharehoders under the Mix and Match Faciity wi be satisfied ony to the extent that other Booker Sharehoders make off-setting eections. To the extent that eections cannot be satisfied in fu, they wi be scaed down on a pro rata basis. As a resut, Booker Sharehoders who make an eection under the Mix and Match Faciity wi not know the exact number of New Tesco Shares or the amount of cash they wi receive unti settement of the Merger Consideration due to them, athough an announcement wi be made at the Effective Date of the approximate extent to which eections under the Mix and Match Faciity wi be satisfied. 16

17 Proof 5 Sunday, February 4, :14 The Mix and Match Faciity wi not affect the entitement of any Booker Sharehoder who does not make an eection under the Mix and Match Faciity. Any such Booker Sharehoder wi receive New Tesco Shares and 42.6 pence in cash for each Booker Share hed. Further detais of the Mix and Match Faciity (incuding the action to take in order to make a vaid eection, the deadine for making eections, and the basis on which entitement to receive cash may be exchanged for an entitement to additiona New Tesco Shares (or vice versa)) for Booker Sharehoders are incuded in the Scheme Document. The Mix and Match Faciity is conditiona upon the Merger becoming effective. Conditions At the time of the Merger Announcement the Merger was, amongst other things, subject to satisfaction of the CMA Pre-Condition. On 20 December 2017, the CMA unconditionay ceared the Merger, confirming that Tesco and Booker do not directy compete in most areas in which they operate and that the Merger does not raise competition concerns. In particuar, the CMA s inquiry found that existing competition is sufficienty strong in both the whoesae and retai grocery sectors to ensure that the Merger wi not ead to higher prices or a reduced service for business customers or consumers. The CMA Pre-Condition has therefore now been satisfied. The Merger remains subject to the fu terms and conditions set out in the Scheme Document, incuding, amongst other things: (a) approva by a majority in number representing not ess than 75 per cent. in vaue of Booker Sharehoders who are on the register of members of Booker at the Scheme Voting Record Time, present and voting, whether in person or by proxy, at the Booker Court Meeting, (b) the passing of a resoutions required to approve and impement the Scheme and to approve certain reated matters by the requisite majority of Booker Sharehoders at the Booker Genera Meeting, (c) the Scheme becoming effective no ater than the Longstop Date, (d) the passing of a resoutions required to approve and impement the Scheme and acquisition of the Booker Shares and to approve certain reated matters by the requisite majority of Tesco Sharehoders at the Tesco Genera Meeting, (e) the FCA and the London Stock Exchange having acknowedged that UK Admission wi become effective, and (f) there having been no materia adverse change or deterioration in the business, assets, financia or trading position or profit or prospects of the Booker Group. As a resut of its size, the Merger constitutes a Cass 1 transaction for Tesco for the purposes of the Listing Rues. Accordingy, we are required to seek the approva of Tesco Sharehoders for the Merger at the Tesco Genera Meeting, which has been convened for a.m. on 28 February 2018 at etc.venues St Pau s, 200 Adersgate, St Pau s, London, EC1A 4HD. Tesco Sharehoders wi be asked to vote in favour of the Tesco Resoutions to approve the Merger, the issue and aotment of the New Tesco Shares. The Prospectus prepared in accordance with the Prospectus Rues, which contains further detais of the issue of the New Tesco Shares, has been pubished on Tesco s website ( 3. Tesco dividend poicy and Booker dividends Refecting Tesco s improved performance and the Tesco Board s confidence in its future prospects, on 4 October 2017 the Tesco Board announced a return to dividends and on 24 November 2017 paid an interim dividend of 1.0 pence per ordinary share (this foows payment of no dividend in the 52 weeks ended 25 February 2017 and 27 February 2016 and payment of a dividend of 1.16 pence per ordinary share in the 53 weeks ended 28 February 2015). The Tesco Board expects a broady one-third, two-thirds spit between the interim and fina dividend (and is intending to pay a fina dividend for the 52 weeks ending 24 February 2018 of 2.0 pence per ordinary share (subject to sharehoder approva)), with dividends expected to grow 17

18 Proof 5 Sunday, February 4, :14 progressivey from 2017, with the aim of achieving a target cover of approximatey 2x earnings per share over the medium term. Tesco and Booker agreed on announcement of the Merger in January 2017 that Booker Sharehoders woud be entited to receive any ordinary interim and fina dividends announced, decared or paid by Booker in the ordinary course, in a manner consistent with past practice, and with a record date faing prior to the Effective Date. Tesco and Booker have now agreed that the cosing dividend (the Cosing Dividend ) that Booker Sharehoders are entited to receive wi be 3.7 pence per Booker Share if the Effective Date is on or prior to 31 March 2018, which wi be paid by Booker soon after the Effective Date and in any event no ater than the date faing 14 days after the Effective Date. This dividend refects the principe agreed between Tesco and Booker in the Merger Announcement that Booker Sharehoders shoud receive a fina dividend payment equa to the accrued but unpaid ordinary dividends that they woud otherwise have expected to receive as a Booker Sharehoder in respect of the period from the end of the ast financia period for which a Booker dividend was announced, made, decared or paid unti the Effective Date, such payment to be reduced by any dividends that a Booker Sharehoder woud be expected to become entited to receive as a hoder of New Tesco Shares after the Effective Date in reation to the same period. If the Effective Date is after 31 March 2018, the Cosing Dividend wi be re-cacuated in accordance with the formua set out in Part X (Dividends) or as otherwise agreed between Tesco and Booker and the amount of the Cosing Dividend wi be announced to Booker Sharehoders via a Reguatory Information Service on or prior to the Effective Date. Further detais in respect of the dividend entitements of Booker Sharehoders are set out in Part X (Dividends). 4. Background to and reasons for the Merger The food market is constanty evoving. In home consumption is significant and stabe, but the eating out market continues to grow and evove with deivery and convenience becoming increasingy important to business customers and consumers. The Tesco Board recognises the attractive opportunity which exists for the Merger to bring together retai and whoesae expertise to create a market eader in products and procurement, with extensive reach, distribution and suppy chain capabiities to create the UK s eading food business. The Tesco Directors expect that the Combined Group wi be we-positioned to offer a more innovative offer for customers and consumers in a arger and faster growing market. Booker is the UK s eading food whoesaer Booker operates a cash and carry network and, through its 198 branches 1, has a deivery capabiity with nationa coverage. Through its branches, Booker has the abiity to serve independent retaiers, catering and sma business customers, and aso serves nationa chains of retaiers (incuding symbos groups and franchise networks), cinemas and other organisations. The Booker Group has grown with its customers. By improving choice, prices and service to its customers, Booker has grown its saes from approximatey 3 biion in the 52 weeks ended 30 March 2007 to approximatey 5.3 biion in the 52 weeks ended 24 March 2017, which has driven its operating profit from approximatey 46.1 miion in the 52 weeks ended 28 March 2008 to approximatey 176 miion in the 52 weeks ended 24 March Booker is predominanty engaged in the whoesae suppy of food and non-food products to a range of catering, retaier and other sma businesses, with a arge majority of its profits generated from business customers in the catering sector. 1 The branch known as Makro Park Roya, London is the subject of a compusory purchase order and discussions remain ongoing in reation to the compensation payabe to Booker. 18

19 Proof 5 Sunday, February 4, :14 Booker was aso voted the UK s best whoesaer by The Grocer in This is the seventh time this has been achieved in the past eight years. Tesco is the UK s eading food retaier Tesco operates as a eading food retaier in the UK via its own distribution channes, with an efficienty managed network of 3,500 directy owned and operated stores. 330,000 skied coeagues hep serve 52 miion customer transactions a week in the UK and ROI. It has 16 miion active Cubcard customers. Based on strong suppier partnerships Tesco offers eading fresh, own-brand and branded ranges of products. It aready has proven eadership in grocery home shopping with 98 per cent. reach of the popuation through this on-ine service. The Merger wi create the UK s eading food group, offering benefits to consumers, customers, suppiers, coeagues and sharehoders: Consumers The consumers being served by the Combined Group are expected to benefit from: improved choice in the range of fresh food avaiabe at more, convenient outets; the widest range of food and ingredients in professiona catering outets; quaity fresh foods at attractive prices at more retai and eating out estabishments; and an expanded network of up to 8,000 convenient neighbourhood ocations to pick up cick and coect orders. Customers Independent retaiers, caterers and sma businesses The Combined Group wi be abe to improve choice, prices and service for the retai, catering and sma business customers that Booker is proud to serve. It is expected that, as a resut of the Merger, Booker s customers wi benefit from the Combined Group s abiity to: offer a significant enhancement to the range of food avaiabe for independent retaiers, caterers and sma businesses, incuding fresh food and the avaiabiity of new, own brand ranges; improve the vaue equation through better sourcing, aowing access to competitive prices from arger brands; significanty enhance the deivery service by utiising the Combined Group s range and feet; provide access to Tesco banking, mobie and Tesco Pay+ services to support the management of businesses, and the core consumer offering; transfer knowedge, skis and innovation ideas across the retai and whoesae markets more readiy to deveop an enhanced proposition for businesses and consumers; and make a positive contribution to oca communities through supporting sma businesses. Suppiers The Combined Group wi benefit from a muti-channe suppy chain covering the whoe spectrum of food, grocery and catering suppies, which wi provide opportunities for suppiers. It is expected that, as a resut of the Merger, the Combined Group wi: 19

20 Proof 5 Sunday, February 4, :14 provide access to a wider range of channes and outets, opening up broader market opportunities for suppiers. This incudes the opportunity to create own abe brands as we as suppying existing products to a wider footprint; create the opportunity for fresh suppiers to use and se their fu crop. By opening up a broader range of routes to markets the Combined Group anticipates fuer crop procurement and utiisation which wi hep reduce food waste, ower costs of production and increase efficiencies. The Combined Group anticipates greater opportunities for innovation in food production as a resut; and hep reduce carbon emissions through improved production measures and the utiisation of the most efficient storage and transportation network. Coeagues The Combined Group wi open up opportunities for coeagues of both Tesco and Booker by broadening the range of experiences, skis and roes in a muti-channe business. It is expected that, as a resut of the Merger, the Combined Group wi: provide stretching growth opportunities by becoming part of a arger business; offer broader experiences and skis in a new, muti-channe environment; enhance the security of roes by deivering growth; and open up further opportunities for coeagues to be invoved in and contribute to oca community projects. Sharehoders The Merger is anticipated to create sharehoder vaue by generating new growth, whist retaining market-eading retai and whoesae expertise. It is expected to: provide investors with access to a arger, faster-growing market opportunity for the Combined Group; bring together the capacity and capabiity to acceerate revenue growth; improve efficiency and asset utiisation of the Combined Group; and reaise significant efficiencies with quantified synergies of at east 200 miion per annum. by the end of the third year foowing competion of the Merger (as described in further detai in the section tited Financia benefits and effects of the Merger beow). As a resut, the Tesco Board expects the Merger to: generate a Return on Invested Capita in excess of Tesco s cost of capita in the second fu financia year foowing the Effective Date, and significanty in excess of Tesco s cost of capita in the third fu financia year as the synergy benefits are deivered; be accretive to Tesco s earnings per share (excuding the effects of impementation costs) in the second fu financia year foowing the Effective Date; and be beneficia to Tesco s everage metrics as the benefits of the Merger are deivered. 5. Financia benefits and effects of the Merger The Tesco Board beieves that the Combined Group wi bring together the capacity and capabiity to acceerate revenue growth, from opportunities which: hep independent retaiers grow their business by enabing them to offer an enhanced customer proposition, better vaue and quaity, with strong fresh and own brand ranges; 20

21 Proof 5 Sunday, February 4, :14 hep independent caterers by improving the vaue equation through better sourcing and enhancing the range of food avaiabe, incuding fresh food and own brand ranges; better utiise the combined asset base, eading to enhanced deivery service propositions and digita offerings for a customers and improving accessibiity to the fu offering of the Combined Group; acceerate growth in the food service sector, by utiising the Combined Group s combined skis and network; attract more catering and symbo group customers due to the enhanced product range and service proposition; and bring together compementary capabiities and a new source of consumer and customer insight to drive new innovative offerings. As the two businesses have begun their preparation and panning to join forces once the Merger competes, a number of detaied growth initiatives are aready under evauation by joint Tesco and Booker working teams (using cean team arrangements where appropriate). In order to ensure that this work focuses on business areas that can deiver maximum returns in the most cost effective way, each initiative has been categorised as being customer or future concept focused. These growth initiatives wi be further deveoped and coud potentiay be roed out by the Combined Group foowing competion of the Merger. Exampes of these growth opportunities incude: Range optimisation. (Categorised Customer Focused) The two businesses see an opportunity to offer customers new products that are not currenty in the other business product range. As a resut of this initiative the Combined Group pans to tria, and then introduce, a number of products foowing competion of the Merger to improve the range and offer for both Tesco s and Booker s existing customers. Through its broad-based suppier reationships and reach, the Combined Group wi be abe to bring a wider range of products to Booker s food service and catering customers at competitive prices, with exampes under review incuding key areas such as food ingredients, fresh foods, baked goods and chied categories. As we as a wide product range to support its network of independent retai partners, Booker has deveoped a number of innovative products for its food service and catering customers, which the Combined Group beieves wi aso be attractive to Tesco s retai customers. Chef Centra impants within arger Tesco stores. (Categorised Customer Focused) Booker currenty offers a taiored range of products and services for professiona chefs and cooks centred on its growing Chef Centra business and successfu Chef s Larder and Chef s Essentias branded ranges. The Combined Group has identified a number of arger Tesco stores where new Chef Centra impant stores coud be deveoped. The Combined Group beieves: deveoping these impant stores wi bring this successfu offer to more professiona chefs and food customers across the country; this wi improve space utiisation within Tesco s arger stores, buiding on other space ed initiatives ike the Next store in store project; 21