Co-op in £1.56bn Somerfield buy-out

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The deal will cement the Co-op's position as the UK's fifth biggest food retailer, with sales of about £8 billion and a market share of approximately 8%. It will also have more than 3,000 outlets.

Co-op chief executive Peter Marks said the the acquisition would provide "rocket fuel" for the group's growth plans.

He added that the deal, which is subject to regulatory approval, would be good news for consumers and for competition in the grocery market.

The Co-op, which is a mutual company owned by 2.5 million members, unveiled a three-year plan in April to double profits and invest £1.5 billion in transforming its retail estate.

As well as currently being the UK's fifth largest food retailer, it is the third largest pharmaceuticals chain, the biggest provider of funeral services and the largest independent travel business in the country.

Somerfield comprises 880 outlets across the UK and generated net sales of £4.2 billion in the year to April, with underlying earnings of £233 million.

Its owners, a consortium including property tycoon Robert Tchenguiz, private equity firm Apax and investment bank Barclays Capital, have been looking for a buyer for some time. They were reported at the weekend to be looking for a price of £2.5 billion.

Somerfield was taken private by its current owners in a £1.1 billion deal in December 2005.

It began life as JH Mills in Bristol in 1875, but changed its name to Gateway in 1950 because the city was the "gateway to the West Country". The group dropped the Gateway name in 1994 to become Somerfield and listed on the Stock Exchange two years later.