Will the Co-op buy Somerfield?

The Co-op, the UK’s fifth largest supermarket chain has said it is in talks about buying rival Somerfield. The Co-op is a fascinating business (see more at the Co-op website) and is thought to have up to £1.5bn to pay for a major investment in its smaller rival.

The Co-op had a pretty dreadful 2007, with profits halving to around £200m. The business is run on behalf of its 2.5 million members – customers who banked £45m in cash dividends last year.

The Co-op itself blames the poor financial performance in 2007 on – guess what – a wave of merger activity within the Co-operative movement. With more than 4,300 retail outlets across the UK, it now employs 85,000 people. The worsening economic environment and tougher marketplace doesn’t seem to have dampened its enthusiasm for even more growth, however.

Such enthusiasm was thought to be a thing of the past. The 2005 purchase of Somerfield by a private equity company for £1.1bn came at the height of ‘merger mania’. All that seems like a long time ago now.