The Co-operative Group to Acquire Somerfield for £1.565bn

The combined food business will operate more than 3,000 grocery stores and generate net sales of about £8bn, making it a market leader in convenience food retailing and the fifth largest food retailer in the UK.

17/07/08 The Co-operative Group and Somerfield have entered into an agreement for the Co-operative Group to acquire Somerfield for £1.565bn on a cash free debt free basis.

Somerfield operates approximately 880 local grocery retail outlets across the UK. In the year to April 2008 Somerfield generated net sales of £4.2bn, and earnings before interest, tax and depreciation of £233m. At the year end net assets totalled £1.3bn.

Peter Marks, Chief Executive of The Co-operative Group, said: “This is good news for consumers and for competition in the grocery market where we will create a stronger fifth player in food and a convenience store chain with unrivalled geographic reach.

“For The Co-operative Group this is a transformational deal - cementing our position as the UK’s premier community retailer and helping us significantly as we lead a renaissance of the Co-operative brand. Together, The Co-operative and Somerfield colleagues will be better placed than ever before to provide consumers with great choice, value and service.

“The acquisition of Somerfield will provide the rocket fuel for our three-year growth plan, outlined in April of this year. Under this plan we are revitalising our retail estate under a single unified brand - modernising our stores, improving our product offer and service levels for customers and members and reinforcing our Co-operative difference.

“There is a strong strategic fit between the two businesses, with both focused on the highly competitive top-up and convenience shopping market. We anticipate real cost and revenue synergies, enabling us to enhance still further the overall value we deliver to our customers.

“Given a deal of this nature, there are likely to be some local competition issues. We are confident we will be able to work through these with the Office of Fair Trading.” These figures are unaudited Paul Mason, Chief Executive of Somerfield, said: "The Co-operative Group and Somerfield have a similar focus in terms of customers, store types, product ranges and business vision. Our shared vision of providing a high quality and affordable convenience offer to local communities means that together we will be twice as strong and therefore twice as able to deliver the local grocery shops British customers demand.

“Over the last two years we have transformed every aspect of Somerfield, a significant achievement, and as a result we are now trading from a position of strength. With Somerfield and The Co-operative Group as one business we believe that we can learn from each others strengths to ensure we continue to develop the best local grocery shops in Britain.”

The transaction will be financed through committed bank facilities underwritten by Barclays, Lloyds TSB Corporate Markets and The Royal Bank of Scotland with significant funding also provided by Bank of Ireland and The Co-operative Bank. Financial advisers to The Co-operative Group were Credit Suisse (lead financial adviser) and RBS/ABN Amro Corporate Finance (joint financial adviser). HSBC were also financial advisers. Citi were advisers to Somerfield. The transaction is conditional on receipt of appropriate regulatory approvals.

The Co-operative Group is the UK’s largest mutual retailer. It is the UK’s fifth largest food retailer, the third largest retail pharmacy chain, the number one provider of funeral services and the largest independent travel business. It also has strong market positions in banking and insurance. The Group employs 85,000 people, has 2.5 million members and more than 4,300 retail outlets.

As well as delivering on its financial and operational goals, The Co-operative Group aims to deliver its social goals, playing an active part supporting local communities and the wider world.

For the 52 weeks to 12 January 2008 The Co-operative Group reported net sales up 13.4 per cent to £8.3bn; consolidated Group operating profit before significant items rose 8.6 per cent to £431.6m. Trading group operating profit before significant items rose 35.2 per cent to £322.7m on net sales up 18.8 per cent at £6.3bn. Within the Food business, like-for-like sales rose by 4.6 per cent. Current trading continues to out perform the market. For the 26 weeks to the 12 July, like for like sales (excluding fuel) were up by 4.7 per cent which was 0.3 percentage points ahead of the market. Refitted stores continue to perform very well showing like for like sales growth of c.12 per cent and we are on course to refit 700 stores in the current year.