Tesco‘s merger with food wholesaler Booker has hit a major snag after its third and fourth-largest shareholders criticised the proposed £3.7 billion deal.

Schroders and Artisan Partners have separately written to Tesco chairman John Allan, pressuring him to can the merger.

The two shareholders have a combined stake of nine per cent in Tesco.

The news comes on the same day the supermarket giant was handed a £129 million fine over the 2014 accounting scandal.

The Tesco-Booker merger will only go ahead if a majority of shareholders vote in favour of the deal.

Schroders and Artisan Partners criticised the “foolhardy” proposal and believe it will be a distraction from the ongoing turnaround efforts under chief executive Dave Lewis.

In his letter to Allan as seen by the Financial Times, Schroders fund manager Nick Kirrage urged the chairman to “reconsider and withdraw” it.

READ MORE: Tesco fined £129m over 2014 accounting scandal

“All management teams believe that their acquisitions will create value,” Kirrage wrote.

“However, there is compelling academic and empirical evidence that, on average, acquisitions destroy value for acquiring shareholders.”

Meanwhile, the fund manager of Artisan‘s Global Value funds, Daniel O‘Keefe, told the Financial Times the merger would be a huge risk as the grocer continues its turnaround efforts.

“We just don‘t understand, in a business as fragile as retail, why on earth would we risk distracting ourselves from that huge goal,” he said.

This is not the first time Tesco has faced opposition from within over the proposed deal.

In January, non-executive director Richard Cousins‘ quit the Tesco board over his opposition to the deal.

In response to the shareholders‘ protest, a Tesco spokesman said: “We always listen closely to the view of our shareholders. We have had a wide series of meetings over the last two months and are pleased with the overall response.

“We have been working on the transaction for over 12 months and believe the strategic and financial rationale is compelling. We are confident that it will enhance our recovery plans for Tesco and deliver substantial benefits to customers and shareholders.

“Since announcing the transaction the majority of our top 10 shareholders have chosen to increase their shareholding in Tesco and we hope to convince all our shareholders of the merits of the transaction.”

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