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Poundland buys 99p stores for £55m

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Discount retailer Poundland has made a £55m bid for its competitor 99p Stores. 99p Stores network of 251 stores also includes the Family Bargains brand. Poundland will also be taking control of 99p Stores’ warehouses and distribution centre.

The takeover is subject to a review by the Competition and Markets Authority (CMA) which is expected to take at least two months, despite the fact that all parties concerned have already conducted talks with the CMA.

The £55m bid is made up of £47.5m in cash and the issue of £7.5m’s worth of new Poundland shares. Poundland’s share price has risen by around 10% since the announcement this morning. With £55m to spend at the discount retailer, you could purchase 385m KitKats.

Poundland’s Chief Executive Jim McCarthy said: “This is a good deal for both businesses and will benefit customers and shareholders. 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.

We also believe that we can improve the performance of the 99p Stores estate and generate further value for Poundland’s shareholders. We look forward to working with the CMA as it undertakes its review.”

Poundland currently has around 600 stores in the UK, Spain as well as in Ireland too and plans to open 16 new shops this year and next in the British Isles. It is thought that a factor in the strategic move is Poundland’s stated desire to increase its presence in Southern England, where 99p Stores has around 120 outlets.

Jon Copestake, Retail Analyst at the Economist Intelligence Unit said:

“The acquisition of 99p stores by Poundland has obvious synergies and ties in well with Poundland’s plan to double its store footprint. There will be significant advantages in terms of eliminating competition from a soft discounter offering an (almost) identical price proposition. The buyout also leverages combined buying power with suppliers and will increase the range of items the two discounters can offer to consumers at this price point.

However the deal also hints at changes in the sector. Soft Discounters like Poundland and 99p Stores have proliferated in high streets and town centres hit by austerity. As a result the merger may create over-concentration for Poundland, hinting that some stores will need to close.”

David Stoddart, analyst at Edison Investment Research, said of the bid:

“It poses an interesting question for the competition authorities about how to define the market. If they define it narrowly as ‘pound shops’ the deal could be at risk. If they define it widely as ‘general goods stores’ there is less of an issue.

It also raises another question mark over the future of the high street. In recent years, the pound shops have been among the few operators expanding into vacant high street units. One fewer ‘pound shop’ operator means more empty units and other things being equal, an earlier death for some marginal high streets.”

Published on Friday 06 February by Editorial Assistant

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