Poundland seeks to buy 99p Stores for £55m

Budget retailer Poundland has said it wants to buy 99p Stores for £55m, subject to approval by competition authorities.

The two firms have signed a conditional deal for £47.5m in cash and £7.5m in shares.

The sale, should it go through, includes 99p Stores' network of 251 shops, which trade as 99p Stores and Family Bargains.

Discounters in the UK have been taking market share from supermarkets.

Poundland-branded

Over time, 99p Stores will be converted to Poundland shops, a spokeswoman for the firm said. The deal is subject to approval by the Competition and Markets Authority (CMA).

The firm floated in March with an initial offer price of 300p per share. On Thursday, Poundland shares closed at 357.8p.

Poundland shares rose over 10% in mid-morning trading on Friday to 396.5p.

Poundland chief executive Jim McCarthy said: "Through working together, Poundland will improve choice, value and service for 99p Stores' customers, bringing Poundland's proven know-how and range to 99p Stores."

Since 1990, Poundland has opened almost 600 shops in the UK, Ireland and Spain, and plans to open 16 new shops per year for the next two years in the UK and Ireland.

It trades as Poundland in the UK, and Dealz in Ireland and Spain.

Southern expansion

Independent retail analyst Nick Bubb said the deal would ease Poundland's effort to expand in the south of England.

"Having always said that it wasn't interested in buying out its aggressive but smaller rival 99p Stores ... as it came south, Poundland has decided that it is better to deal with the nuisance by pursuing a path of 'consolidation' and buying the company," he said.

Nevertheless, because of the way the shops overlap, Mr Bubb said the Competition and Markets Authority (CMA) could take up to two months to decide on whether the takeover should be allowed to proceed.

He said Poundland's proposed £7.5m share sale, to fund the "relatively modest" £55m acquisition, will be "up in the air for some time" due to the CMA scrutiny.

In a research note, US bank Citi said 99p stores had sales of £370m in the year to February 2014, but that its underlying earnings suggested "very thin" profit margins compared with Poundland.

In November, Poundland reported a 12% rise in half-year profits to £9.3m.