Poundland snaps up chain of stores undercutting it by 1p

The chain of 251 stores, which trade under the name of 99p Stores or Family Bargains, will now become part of the Poundland set of operations.

Before the acquisition can be completed officially, the Competition & Markets Authority (CMA) must give its approval excuse of the size of the two companies. According to a statement, the CMA may require Poundland to “take actions or remedies to address any impact on competition arising as a result of the proposed transaction”.

Explaining the motivation for the transaction, 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.

“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 has also said that, regardless of the acquisition’s eventual completion, it will continue with a store rollout in the UK and Ireland as well as further developing its trial operation in Spain.

Under the terms of the 99p Stores buy, Poundland will pay a cash consideration of £47.5m and issue of shares worth £7.5m. The cash amount, as well as the costs needed to make the integrate and restructure 99p Stores, will come from an equity placing made just before deal closure.

Read more about Poundland:

• Poundland looks across the water to Ireland
• Poundland picks up eight Peacocks stores
• 8 London 2014 IPOs to remember

Financial figures show that, for the year to date 1 February 2014, 99p Stores had sales of £370.4m and an underlying EBITDA of £6.1m.

The CMA review of the acquisition is expected to take two months and will feature a public consultation, after which a ruling will be made on its acceptability.

The timing of the deal marks nearly a year to the day that Poundland announced its intention to float in the London Stock Exchange. At that stage it was 76 per cent-owned by Warburg Pincus, with management holding the rest. Poundland saw its value swell from £750m on its first morning of being a public company to £925m during the first day. On news of the 99p Stores purchase, its share price climbed 9.5 per cent.

By Hunter Ruthven

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