Co-op rescues Alldays with £131m offer

The Co-Operative Group became Britain's largest convenience store operator yesterday when it snapped up the debt-laden Alldays chain for £131m.

The deal adds Alldays' 600 stores to the Co-op's existing 1,071 convenience outlets, which trade under the Co-op Welcome banner. The acquisition means the Co-op leapfrogs the Spar group to become the market leader in the UK's £37bn neighbourhood retailing sector, with a share of 5.9 per cent.

The Co-op acquired Alldays from the receivers as the publicly quoted operation was placed in the hands of PricewaterhouseCoopers and then sold on. Alldays' beleaguered shareholders will receive 2.5p a share as part of the deal, making the equity worth just £2.2m.

The remainder of the sale proceeds will go to pay off part of Alldays' total debts of £190m. About £60m will therefore be written off by the banks, which include Royal Bank of Scotland.

The deal safeguards 10,500 jobs at Alldays and the Co-op said it is likely to keep on Alldays' management team. The Co-op would not comment on the possibility of closing the Alldays head office in Eastleigh, Hampshire. But it said the deal was predicated on growing sales and margins rather than cutting costs.

"The acquisition of Alldays will help us to build the momentum behind our highly successful convenience proposition," said the new Co-op chief executive Martin Beaumont, who succeeded Graham Melmoth earlier this year.

Mr Beaumont said the name and format of the Alldays stores would change to Co-op Welcome. He also said like-for-like sales at Co-op Welcome were up 7 per cent on last year.

Commenting on the deal, Richard Hyman, the head of the retail consultancy Verdict Research, said: "The rationale is sensible as the Co-op's future lies in neighbourhood retailing. They don't have the wherewithal to fight with the big boys [such as Tesco and J Sainsbury]. It has been a good business for them."

He pointed out that while the neighbourhood market was not growing quickly, it was a fragmented sector. According to research by Verdict, a combined Co-op Alldays would be ahead of Somerfield and Londis in the neighbourhood retailing market. T&S Stores, a Birmingham-based company, has also been growing rapidly and now has 900 outlets.

However, the major supermarkets are starting to invade this market, attracted by growing consumer demand for ready-made meals and other forms of "top-up shopping". Tesco recently said it would like its Tesco Express smaller store format to have 1,000 stores. Marks & Spencer is also looking for at least 200 of its Simply Food convenience stores.

Alldays shares stood at 600p four years ago when it was expanding rapidly using a franchise system. But the group over-extended itself and was touted around for sale two years ago but failed to secure a price it was prepared to accept.

In the six months to April Alldays recorded a loss of £4.6m on sales of £251m. In the year to 28 October it had sales of £525m.

The Co-op has decided to concentrate its food retailing operations in smaller, convenience stores after selling its larger supermarkets.