Poundland aims to take over 99p Stores line for £55m

It will give the £1-for-everything chain another 251 shops, currently trading as as 99p Stores and Family Bargains, and another two million customers who will have to start paying an extra penny when they go shopping in future.

Poundland, which floated on the stock market last year, will also pick up a 300,000 sq ft warehouse and distribution centre in Northampton as part of the deal.

This will add to its existing three warehouses, including one at its headquarters in Willenhall and another in Bilston. The company employs around 700 people across the two Black Country sites.

Chief executive 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 know-how and range to 99p Stores."

But the deal will have to get the green light from the competition watchdog first. Poundland says it has already had discussions with the Competition & Markets Authority, which will now launch a public consultation. The process is expected to take around two months.

If it gets the go-ahead, and Mr McCarthy said he was 'optimistic' work will start gradually converting 99p Stores into Poundland branches.

But around 100 99p Stores are within a mile of rival Poundland outlets. Mr McCarthy said it was too early to saw how many competing stores might close as a result of the deal, but said: "In some locations it is profitable to operate more than one store. There are three Poundland stores within 500 metres of each other in Birmingham city centre and they are all profitable."

He said the deal would give Poundland more sites in London and the South East – a target area for the chain – but there would be no slowdown in Poundland's existing plans to open around 60 new stores a year. The company had been aiming for 1,000 stores in the UK but, with around 800 after this deal, he said Poundland would be aiming to exceed that old target.

Meanwhile, the company is also making progress with its stores in Spain, under the Dealz name used on its stores in Ireland, which could which could lead to further expansion in continental Europe.

Poundland was founded in 1990 by former market trader Steve Smith. He sold up for £50m in 2002 and Poundland has grown to serve around five million customers every week, even launching its own celebrity-backed baking range, Jane Asher's Kitchen. This is set to be followed this spring by former Groundforce TV star Tommy Walsh's DIY range of 200 products, which have been in development for more than a year.

Family-run 99p Stores was founded by Nadir Lalani with a single site in Holloway, north London, in 2001, helped by sons Hussein and Faisal, before opening a further three stores later that year.

It has grown rapidly in recent years following the demise of Woolworths in 2008 as bargain retailers have become regular fixtures in UK high streets.

Its annual sales were £370.4 million in the year to February 1 last year and underlying earnings were £6.1 million.

Poundland is paying £47.5 million in cash plus £7.5 million in new shares. The deal will be partly funded by issuing new shares.