Somerfield to take over small Safeway stores

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The Independent Online

Supermarket group Somerfield is to take control of 114 smaller Safeway stores as part of a £260 million deal involving rival Morrisons, it said today.

Supermarket group Somerfield is to take control of 114 smaller Safeway stores as part of a £260 million deal involving rival Morrisons, it said today.

Bradford-based Morrisons, which bought Safeway last year, said the disposal would allow it to concentrate on larger sites and speed up the conversion of stores to its own brand.

The group is selling 63 Safeway Compact convenience stores to Somerfield for £115 million.

The remaining 51 sites, along with a distribution centre, will be sold to an investment company for £145.2 million, and will be leased back to Somerfield.

It comes just days after Morrisons cheered the City with news that sales were soaring at Safeway stores rebranded under the Morrisons format.

The disposal of the smaller stores - many of which are in Scotland and the north east of England - will see 9,000 staff transferred to Somerfield.

The move by Somerfield comes as the Bristol-based chain continues to build up its presence in the convenience store sector, following a deal earlier in the year to buy Scottish chain Aberness.

In addition, Somerfield said today that it will acquire stock and cash floats from Morrisons for around £35 million.

The supermarket is funding the deal - which also includes seven petrol forecourts - with new bank debt and £50 million raised through the placing of new shares. The company leasing stores to Somerfield is Northwharf Investments.

The deal does not depend on approval from the Office of Fair Trading (OFT), although Somerfield may have to sell two stores.

Somerfield said the acquisition of the Welwyn Garden City depot in Hertfordshire would boost its distribution abilities in the south east of England.

Chief executive Steve Back said: "This acquisition represents an excellent opportunity for Somerfield to grow its estate without a significant increase in gearing and to capitalise on its proven expertise in operating smaller stores."

Somerfield is also in the middle of a refit programme involving more than 1,200 shops under its Somerfield and Kwik Save brands.

It said today that trading at both chains during September and October was in line with management expectations, although market conditions remained tough.

Like-for-like sales, which strip out new openings, were 1.4% higher at Somerfield and 0.2% higher at Kwik Save in the eight weeks to October 9.

Morrisons said the sale of the stores would save it an estimated £10.2 million in rent every year. Most of the stores being bought by Northwharf are freehold, while the majority of those sold to Somerfield are leasehold.

Morrisons said last week that same-store sales at Safeway stores converted to the Morrisons brand were 12.5% higher excluding petrol, while those not yet converted saw a further slump.

As part of a separate sale process, Morrisons has sold the bulk of the 52 outlets it was required to offload by competition authorities. Waitrose and Sainsbury's have been among the beneficiaries of that process.

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