Poundland (LSE: PLND) announced this morning that it has signed a conditional sale and purchase agreement to buy the rival 99p Stores for an enterprise value of £55 million. The deal — which is subject to approval by the Competition & Markets Authority — will consist of a cash payment of £47.5 million and the issue of new Poundland Shares with a value of £7.5m at close. Shares in Poundland are up 9% at the time of writing.
Poundland — Europe’s leading single price general merchandise retailer — says that it believes the combined businesses will provide better choice, service and value for customers of 99p Stores (despite an implied 1% price rise). 99p Stores, which also trades as Family Bargains, has a network of 251 shops, together with a warehouse and distribution centre.
99 Stores had sales of £370.4m in the year to 1 February 2015, with underlying earnings before interest, tax, depreciation and amortization of £6.1m. Poundland says it believes that when fully integrated, the combined company will enhance earnings per share for Poundland’s shareholders, although it is careful to warn that it’s not actually forecasting higher earnings per share for the year to 27 March 2016.
Commenting on the deal, Poundland CEO Jim McCarthy said
“This is a good deal for both businesses and will benefit customers and shareholders. Through working together, Poundland will improve choice, value and service for 99p Stores’ customers, bringing Poundland’s proven know-how and range to 99p Stores. We also believe that we can improve the performance of the 99p Stores estate and generate further value for Poundland’s shareholders.“
Since floating on 12 March last year Poundland’s share price has had something of a roller-coaster ride. The heavily over-subscribed new issue soared on launch day, hitting a 19% premium to the 300p flotation price, only to subsequently fall 5% below issue price, to 284p, in mid-May. At 390p, they now stand 30% up on flotation price, compared with a 3% rise in the FTSE All Share over the same period.
