Resurgent Morrisons in £220m deal for 38 Co-op and Somerfield stores

MORRISONS yesterday hailed its Scottish stores as among its "strongest" as the UK's fourth-largest grocer posted bumper sales figures and unveiled its biggest deal since the £3 billion Safeway takeover in 2004.

The group said it had signed a provisional agreement to buy 38 Co-op and Somerfield stores for £223.1 million. Morrisons did not disclose the locations of the 38 shops but said they would compliment the 150 small stores already in its portfolio.

The deal is dependent on the completion of Co-op's acquisition of Somerfield, agreed in July this year.

The supermarket giant appeared to rule itself out of the race for Woolworths stores, saying most were too small.

If the Co-op deal goes through, it would mark the culmination of a turnaround for Morrisons, which posted a £313m loss in 2006 before reporting a record £612m profit in March, when Sir Ken Morrison stood down as chairman and became life president. Morrisons had come under attack from the City for its audacious swoop on Safeway after it struggled to integrate the stores.

News of yesterday's agreement came as Morrisons reported that like-for-like sales excluding fuel rose 8.1 per cent in the 13 weeks to 2 November, more than four times the level reported by larger rival Tesco on Tuesday and ahead of City forecasts by a percentage point.

More than 700,000 new shoppers used its supermarkets each week on average during the third quarter, with the chain describing its "sustained leadership" on reducing petrol prices "extremely popular". The group has launched cheaper lines, discounts and promotions, including a "Sunday lunch for four for £4" offer, which attracted 250,000 shoppers.

Richard Pennycook, Morrisons finance director, said the firm was not running many more promotions than at this time last year, but it was trying to be innovative.

Morrisons said it would delay its planned £1bn return of surplus capital to shareholders – in which £145.4m has been spent on 57.8 million shares – and put the cash towards the purchase of a distribution centre in Kent and the proposed Co-op deal. In March, it said it intended to return £500m to shareholders in the current financial year.

Freddie George, an analyst at Seymour Pierce, said Morrisons was still stealing market share from its three major rivals. But he added: "We believe it will become harder for Morrisons to improve market share in a more competitive market, which is likely to see more discounting, with Tesco trying to recapture market share."

Morrisons has 375 shops in the UK – including 52 in Scotland – and about 117,000 staff.

Morrisons shares slipped 5.75p to close at 244.75p.

BACKGROUND

THE Co-op yesterday said it had found buyers for 24 stores it was being forced to sell in order to receive regulatory approval for its takeover of Somerfield.

Under the proposals, a Somerfield store on Victoria Street in Glasgow's Shawlands will be sold to Lidl and another outlet in Uddingston will be bought by Tesco. South of the Border, Budgens will buy seven, Spar six, Tesco a further five and Morrisons four.

A list was also published of a further 109 locations, including 18 in Scotland, in which the Office of Fair Trading said either Co-op or Somerfield stores would have to be sold in order to receive regulatory approval.

The spokesman for the Co-op and Somerfield said he hoped the deal could be completed in the first quarter of next year.