£55m deal for rival piles on the pounds
THE boss of Poundand said the discount sector is here to stay as it stepped up its expansion by agreeing to buy smaller rival 99p Stores for £55million.
Chief executive Jim McCarthy said the deal, which is conditional on approval by the Competition and Markets Authority, represents a "step change" in Poundland's ambitions to grow its presence, particularly in the south of England.
Poundland shares soared 15 per cent as investors sensed a bargain buy, which will add 251 stores and over two million customers to its existing portfolio of 534 UK outlets, 39 shops in Ireland and a five–store trial in Spain under the Dealz name. Poundland will pay £47.5million in cash and new shares worth £7.5million.
Family–run 99p Stores was founded with a single site in Holloway, north London, in 2001 by Nadir Lalani, below, who arrived from Tanzania in the 1970s.
Consumers are used to preserving their hard–earned cash and giving themselves choices
In the year to February 2014, it posted pre–tax earnings of £6.1million on sales of £370.4million. Poundland's firsthalf profit was £12.6million on sales of £528.2million.
McCarthy said: "We know we can grow organically in the UK to over 1,000 stores. We don't have to do any deals but this is a one–off opportunity. These opportunities don't come along every five minutes and the price was right.
"There is an under–representation of Poundland in the south of the country, where 99p Stores is more heavily represented. The population and other key economic trends mean this is a good part of the country to invest in. We believe we can improve the performance of the 99p Stores estate and generate further value for Poundland's shareholders. Shopping habits have profoundly changed and I think the discount sector is here to stay.
"Consumers are used to preserving their hard–earned cash and giving themselves choices."
The review by the competition authorities is expected to take at least two months.
Poundland shares closed up 55¼p to 413p, their highest since the business was floated at 300p last March.