The move immediately sparked talk on whether Tesco had paid too much. It also fuelled speculation over how Associated British Foods might spend its burgeoning cash pile which will reach pounds 1.5bn following the deal's completion.
Garry Weston, ABF's chairman, dismissed suggestions that he might be interested in acquiring Hillsdown Holdings, the Typhoo Tea and Hartley's jam group. He said: "We have been trying to get out of those kind of businesses for 15 years."
However, he did not rule out interest in National Starch, part of the speciality chemical business recently put up for sale by Unilever, or an acquisition in the Polish sugar industry, currently in the process of being privatised.
He declared himself satisfied with the sale: "We felt the business had a better future with them [Tesco], than with us. These sort of businesses sometimes get to a certain size then they need more clout. They will have that." He added that the gradual invasion of the Irish market by Tesco and Sainsbury would have made it harder to increase profits.
The deal, which includes a pounds 10m dividend to ABF, eclipses Tesco's previous record deal, the pounds 250m paid for the Scottish chain William Low in 1994. It means Tesco will leapfrog Sainsbury in Northern Ireland, where it has been opening new stores.
Tesco already has one Tesco Metro in Belfast and planning applications in for two superstores. This deal gives Tesco a further 109 supermarkets under the Quinnsworth, Stewarts and Crazy Prices names. It also includes 79 Wine Barrel off-licences and 47 sports shops trading as Lifestyle Sports and Leisure, as well as a pork processing and a packaging business.
Tesco's chairman, Lord MacLaurin, said: "We believe Northern Ireland and the Republic of Ireland are attractive markets where Tesco can bring its extensive retail expertise to bear."
Tesco will hope this deal proves more successful than its last in Ireland. It acquired a chain of supermarkets in the Republic in the late 1970s and changed the name to Tesco. The move caused antagonism locally and Tesco later sold them. Tesco said that it would be more sensitive this time and would trade the businesses under their existing formats.
It also sent executives that included Michael Wemms, retail director, and Terry Leahy, chief executive, to Belfast and Dublin to break the news. It said there were no plans for redundancies and that the group's head office in Eire would be retained.
"We won't be steamrolling in with the Tesco name," Lord MacLaurin said. Tesco hopes to improve the Irish operations' margins from their current 4.7 per cent to 6 per cent within three years by increasing sales, particularly of own-label lines, better buying power and the introduction of Tesco's loyalty card later this year.
Analysts said the deal was a full price. "I think it will be very challenging and if Safeway takes over Wellworth [the Northern Irish chain] then Stewarts could come under pressure," said Mike Dennis of NatWest Securities.
What Tesco gets for its pounds 640m
Republic of Ireland
Crazy Prices 18
Sales: pounds 850m
Market share: 19.4%
Crazy Prices 9
Sales: pounds 380m
Market share: 17.5%
Also included: 79 Wine Barrel off-licences, 47 Lifestyle sports & leisure shops, Kingsway Fresh foods (pork processing) and Dailywrap Produce (packaging).
Total sales: pounds 1.24bn Profits: pounds 58mReuse content