Somerfield snaps up small Safeway stores

Today’s deal involves Bradford-based Morrisons, which acquired Safeway for 3 billion earlier this year, selling 63 of the stores directly to Somerfield for 115 million while the remainder, together with a distribution centre, are being acquired by Northwharf Investments - a company jointly owned by Barclays Bank and an investment vehicle of Iranian property tycoon Robert Tchenguiz - for just over 145m.

Northwharf plans to lease its properties to Somerfield.

Morrisons joint managing director Bob Stott said the disposal, which involves 59 outlets north of the Border including two in the Capital, would allow the group to concentrate on running its larger out-of-town stores and help the firm speed up the rebranding of the Safeway estate.

He added: "In focusing on the vision of around 350 to 400 large Morrisons stores - and then growing from there - the sale of these 114 Compact stores means that we will be able to re-engineer our supporting infrastructure and achieve a much greater level of efficiency across our entire supply chain."

Commenting on the deal, Somerfield 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."

Under the terms of the deal, more than 9000 Safeway staff will transfer to Somerfield, which last month reported a summer slowdown in underlying sales growth as poor weather hit sales of ice cream, beer and barbecue products.

In May, Somerfield announced that it was closing 22 of its 51 Scottish Kwik Save stores, and converting the rest to the Somerfield format.

Today’s news, which followed speculation that Somerfield was the main runner for the Compact stores, comes just days after Morrisons cheered the City with news that sales were soaring at its rebranded Safeway stores.

However, the half-year figures also revealed a further decline in trade at unconverted Safeway branches.

Morrisons issued the first profit warning in its 37-year history as a listed company on July 2, blaming falling sales at newly acquired Safeway.

But last week chairman Sir Ken Morrison reassured investors that the conversion programme would be "largely completed" by the end of 2005.

He said at the time that a "great deal of interest" had been expressed in the Safeway Compact stores.

Bristol-based Somerfield said it was funding its part of the acquisition partly from new banking facilities and through a 50m share issue.