The Co-op Group has moved into pole position to swoop on Nisa Retail, trumping its rival J Sainsbury in an accelerating battle to consolidate Britain’s convenience store market.
Sky News has learnt that the board of Nisa Retail has granted a period of exclusivity to the Co-op to negotiate a takeover of the member-owned business.
It comes just days after Sainsbury’s put the brakes on its interest in Nisa amid concerns about competition regulators’ likely view of a tie-up.
In a message circulated on Wednesday, Peter Hartley, Nisa’s chairman, told shareholders that the Co-op had “confirmed, subject to further due diligence, its intention to progress matters as quickly as possible, in the hope that a transaction can be finalised”.
Mr Hartley cautioned that “key elements” of a takeover by the Co-op had not been resolved, adding: “Your board continues to focus on resolving them in a manner which is satisfactory to members.”
“As a result, and in line with the board of Nisa’s duty to act in the best interest of all Nisa members, your board has granted the Co-op a period of exclusive due diligence from today.
“Thereafter, and subject to the results of the due diligence, it is anticipated that the Co-op could be in a position to make a final offer to the Members for your consideration.
“Should an offer of merit emerge from this process, it will be for you, the Members, to decide on whether to accept it.
“However, it is important to stress, that there is no guarantee that an offer will be forthcoming.
“As you are all aware our business and the convenience sector continue to evolve at pace and the board of Nisa will continue to review serious queries and offers which emerge (within the constraints of any agreed exclusivity period) and which it believes are in the best long-term interest of the members.”
Scunthorpe-based Nisa, which is being advised on the sale process by bankers at Lazard, trades from roughly 3,000 stores across the UK.
The Co-op has a long history in the wholesaling sector and is thought to have informed Nisa that it is prepared to pay close to £140m for the business despite the recent loss of a wholesale supply deal with McColl’s to Wm Morrison.
In a statement issued to Sky News, a Co-op spokesman said: “We can confirm that we’ve entered into a period of exclusivity with Nisa, which will provide the opportunity for us to carry out more detailed due diligence in the coming weeks.
“Following this period and subject to approval from our board, we hope to be in position where we can put forward an offer to Nisa members ”
Some Nisa members had expressed opposition to a deal with Sainsbury’s.
Roughly 1,400 members hold up to 250 shares each in Nisa Retail, which they can use to vote on issues such as board appointments at its AGM.
Members are able to acquire additional equity up to the 250-share ceiling, with a simple majority required to vote through a change of ownership.
Nisa recently finalised a £120m refinancing deal amid a shake-up of the sector which has been given extra impetus by Tesco’s proposed £3.7bn takeover of the wholesaler Booker.
Trading under brands such as Nisa Local, it has seen its fortunes improve under Nick Read, who took over as its chief executive two years ago.
Mr Read, who joined after a £3m loss in 2015, has launched an ambitious transformation plan which includes a target of growing sales to £2bn by 2019.
Last year, it recorded a £7.3m profit on sales of £1.3bn, enabling it to kick off fresh refinancing talks with lenders.
In 2017, the comparable earnings figure is expected to be £8.5m.
It grew its membership base by ?a further 225 stores in the fourth quarter of its last financial year, and said this summer that it was “in a positive position for the new financial year”.
Some of Nisa Retail’s members trade under their own names, with the group supplying stock and retail support in return for a fee.
Despite the improved performance, Nisa Retail and rivals like Costcutter face challenging conditions, with growing competition from the major supermarket chains as well as discount-focused retailers.
Palmer? & Harvey, a delivered wholesaler which supplies Tesco and other big retail groups, has been put up for sale following a struggle to negotiate its own refinancing.
Britain’s convenience sector was valued at £37.5bn last year, according to Nisa Retail – a figure expected to grow to £41.9bn by 2021, underlining its appeal to rivals.
Source: Sky News