Poundland (PLND) has announced it is to buy rival fixed-price discounter 99p Stores this morning in a deal worth £55m.

The proposed transaction includes 99p Stores’ entire network of 251 stores as well as its warehouse and distribution centre.

The acquisition price comprises £47.5m of cash and the issue of £7.5m new Poundland shares.

Given the size of the two companies, the Competition & Markets Authority will scrutinise the deal. Poundland said it has already held discussions with the CMA and anticipates the monopolies watchdog “may require Poundland to take actions or give remedies to address any impact on competition arising as a result of the proposed transaction”.

The CMA will begin a public consultation and review process shortly, which is expected to take at least two months.

Jim McCarthy, Chief Executive of Poundland, commented: “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. We look forward to working with the CMA as it undertakes its review.”

House broker Shore Capital called the acquisition “wholly consistent with strategy”, adding that the deal would increase its presence in Southern England and retail parks, boost its store expansion plans, consolidate its position in the discount sector and potentially provide sourcing benefits.

However, analyst Darren Shirley did note that 99p Stores historic margins are considerably below Poundland’s – 99p Stores margins for the year to 1 February 2014 were 1.6%, compared with a forecast 5.4% for the 2015 financial year.

Founded in 2001 by Nadir Lalani, 99p Stores has grown its estate to 251 outlets – trading as 99p Stores and Family Bargains – serving more than two million customers a week. Sales in the year to 1 February 2014 totalled £370.4m with underlying earnings of £6.1m.

Poundland added in a statement this morning that, whether the acquisition goes ahead or not, it will pursue an aggressive store rollout plan in the UK & Ireland and further develop its trial in Spain which “could lead to further expansion in continental Europe”.

Poundland shares were up by more than 10% in early trading to hit 394.7p - close to their highest level since floating for 300p in March 2014.

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