United Co-op enters £1bn bid battle for Somerfield

One of the country's biggest co-operative societies joined the £1bn-plus bid battle for Somerfield, revealing it had made a bid approach for the country's fifth biggest supermarket chain.

One of the country's biggest co-operative societies joined the £1bn-plus bid battle for Somerfield, revealing it had made a bid approach for the country's fifth biggest supermarket chain.

The United Co-operatives Limited, the northern-based wing of the consumer movement, threw its hat into the ring alongside as many as four other potential bidders. Shares in Somerfield jumped 4.5p to 202p at the prospect of an auction to secure control of the last major piece of the supermarket jigsaw. Bidders are queuing up to get their hands on Somerfield's convenience stores - the area of the food market that is showing most growth.

Peter Marks, the chief executive of United Co-operatives, said: "We're at a very early stage but we have been looking at [making a bid] internally for quite some time. An offer makes an awful lot of sense for us because there are so many overlaps and similarities between our business and Somerfield."

The United Co-operatives' businesses span food, travel, health care and car dealerships. It has 509 food outlets, which had sales of more than £800m last year. It is the country's second biggest co-operative society behind the Co-operative Group, the umbrella organisation that is also home to the Co-operative Bank.

Some analysts cast doubt over the viability of a bid from United Co-operatives, warning that it could struggle to raise financing and fall foul of the competition authorities. But a source said: "We been talking to Somerfield for a number of weeks and have convinced them that we're credible." The group has begun limited due diligence, but warned there was "no certainty that an offer will be made".

Baugur kicked off the bid interest in Somerfield in February with an initial £1.03bn offer. The Icelandic group, which owns the Iceland chain, has since joined forces with a rival consortium that includes Robert Tchenguiz, the property entrepreneur, Apax, the private equity house, and Barclays Capital. The consortium is bidding against Ian and Robert Livingstone, who control the property group London & Regional and have made an approach, backed by Nomura, the Japanese bank. Both groups are thought to have offered 205p per share, valuing Somerfield at about £1.1bn.

Asda, owned by Wal-Mart, the UK's second biggest supermarket group, is also running its slide rule over Somerfield. It is thought that Topland, another property group controlled by Sol and Eddie Zakay, has lost interest.

United Co-operatives was formed three years by the merger of the United Norwest and Yorkshire co-operatives. It is one of more than 40 consumer co-operatives in the UK but stands out because its roots lie in the Rochdale Equitable Pioneers Society, the first successful consumer co-operative. Its head office is based in Rochdale.

Mr Marks said the group had "no intention" of joining forces with other potential bidders. Asked whether he was worried about competition issues, he said: "No. We're regional. They're national. There would be very limited overlap. There may well be some minor local issues but they could be dealt with." Its food stores span the north Midlands, the North-west and Yorkshire, while Somerfield has a stronger presence in the South and South-west.

The Office of Fair Trading has yet to launch an inquiry into the market for top-up shopping. Much to the dismay of cornershop owners and pressure groups from Friends of the Earth to the Women's Institute, the OFT has waved through acquisitions by Tesco and J Sainsbury of convenience store operators. Friends of the Earth yesterday reiterated calls for the Government to block all food retailing sector takeovers until it had completed a competition inquiry.

Value of co-operation

Based in Rochdale, United Co-operatives is the largest regional society and the second-largest co-operative movement behind the Co-operative Group.

It made trading profits of £50m on sales of £1.9bn last year, and has had 11 years continuous sales and profit growth.

The society serves 3 million customers every week and employs 15,500 staff across 942 trading outlets.

Its activities span funeral services, food retail and car dealerships.

Its 509 food stores trade under the Co-op Late Shop; Co-op Food Market; and Co-op Village Store brands. It acquired the Quality Fare and Neighbours convenience store chains last year.