Shares in Booker plunged by a third on the news, wiping £70m off the company's stock market value.

It is the second time that Booker has been involved in failer takoever talks in the past few months.

Budgens board members said having reviewed the transaction in detail they had decided against recommending a merger to its shareholders.

Prior to entering talks with Budgens, Booker, the company that sponsors the literature prize of the same name, was in discussions with supermarket chain Somerfield.

Board calls deal off

Although Booker has been seen as keen to do a deal to restore its ailing fortunes, analysts have questioned the logic of a link-up between a distribution company and a grocery retailer.

In a statement to the London Stock Exchange, Budgens said: "Whilst considerable potential synergies and benefits were expected from a combination of the companies, having now reviewed the transaction in detail, the board of Budgens has decided against recommending a merger to its shareholders."

In a statement, Booker confirmed talks had ended, saying a merger would not be in the interests of shareholders.

"Booker will now proceed with the original recommendation of its strategic review by appointing a new chief executive and focusing on its core food distribution business."

Shares in Booker plunged as news about the talks ending broke

In June, at the same time as Booker warned investors that its results for the first half would be substantially below City expectations, it announced the results of its strategic review.

Under the terms of the review it said it planned to become a food distributor and to sell a number of other businesses.

It said it would sell its fish processing, seeds and sugar operations.

If the planned merger with Budgens had gone ahead, the supermarket group's chief executive John von Spreckelsen would have headed up the merged group.

Booker is by far the bigger company, employing 24,400 full and part-time staff compared with Budgens' 2,300 full time workers and 3,159 part timers.

Budgens bought the 7-11 chain of convenience stores last October and has relaunched them under the B2 brand.