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    In U.K., Convenience Store Giant to Result from Costcutter Merger

    Deal involving 6,000 stores designed to counter Tesco's neighborhood campaign.

    LONDON -- Two of the U.K.'s largest convenience store operators set out merger plans designed to halt Tesco's march into "neighborhood shopping."

    According to The Guardian, the deal between Nisa-Today's and Costcutter, will generate windfalls worth up to £80,000 -- with £50,000 in cash -- for hundreds of independent retailers.

    The two groups together have more than 6,000 stores -- all independently owned. Costcutter operates some 1,300 franchises; Nisa-Today's is a vast buying group and wholesaler whose members have a combined turnover in excess of £15 billion a year. It is a mutual organization owned by some 2,290 shareholders -- 330 wholesalers and 960 retailers, many of whom operate several stores. The shareholders operate under independent names and include substantial regional groups like Booth's and Proudfoots. Costcutter is also a shareholder.

    Colin Graves, chairman of Costcutter, who founded the York-based group 17 years ago, told The Guardian it was essential that independent operators join together to face up to Tesco.

    "The time is right to get the ball rolling in the independent sector," he said. "It is all about scale in this business. Tesco can buy better because they have 30 percent of the market. Someone has to show leadership on this issue and that is what we are doing."

    The convenience store sector -- long seen in Britain as the poor relation in the grocery business -- has become fashionable in recent years as increasing numbers of consumers choose to shop locally. Sainsbury's and Tesco have acquired hundreds of stores, while the Co-op and Somerfield have put convenience shopping at the heart of their strategies.

    Richard Hyman of the retail market research specialists Verdict told the newspaper that the Costcutter/Nisa-Today's deal was a logical step: "For many years the convenience sector was the wild west of retailing where the big boys didn't go. But scale and power are becoming much more important. This deal makes sense."

    The combined business will be the biggest c-store operator, with a market share of more than 6 percent. Tesco has some 5.4 percent of the market with its 654 Express stores and recently set out plans to open another 130 outlets in the coming year.

    There are no plans for the two businesses to change any of their branding or to use one fascia, but there are plans for big cost savings.

    The windfall payments offered to Nisa-Today's shareholders will depend on the number of shares they own, but the majority have 100. Those with 100 shares will be offered £50,000 in cash, which will be paid in three installments over two years. They will also receive 100 shares in the new holding company, which the company says will be valued at approximately £30,000, depending on the outcome of due diligence work. The existing shareholders will own 40 percent of the new company.

    The deal is backed and financed by the Icelandic investment bank Kaupthing, which became a minority shareholder in Costcutter this year. It will have an 18 percent stake in the new company, which is expected to be valued at around £200m. The remaining 42 percent will be owned by management, with 10% stakes going to each of the chief executives of the two companies.

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