The Co-operative Group has sealed the takeover of fellow UK retailer Somerfield in a deal worth just under GBP1.6bn (US$3.2bn).

This morning’s (16 July) announcement brings an end to months of talks between the two sides and paves the way for the creation of the UK’s fifth-largest food retailer.

The Co-op, which first signalled its interest in Somerfield earlier this year, will pay GBP1.565bn for the business, which operates around 880 convenience outlets in the UK

The combined business will run around 3,000 stores and command about 8% of UK grocery sales.

Peter Marks, Co-op chief executive, said: “This is a transformational deal, cementing our position as the UK’s premier community retailer and helping us significantly as we lead a renaissance of the Co-operative brand.”

Marks admitted there are likely to be “some local competition issues” but said he is “confident” the Co-op can work with the UK’s Office of Fair Trading to iron out those problems.

Since the Co-op and Somerfield began discussions in the spring, speculation has mounted that some of the larger UK grocers, including Morrisons, would be interested in buying Somerfield stores that had to be sold.

For Somerfield, the agreement ends months of uncertainty for the business since its owners, including property tycoon Robert Tchenguiz, Apax Partners and Barclays Capital, put the company up for sale in January.

Somerfield chief executive Paul Mason said: “With Somerfield and The Co-operative Group as one business, we believe that we can learn from each other’s strengths to ensure we continue to develop  the best local grocery shops in Britain.”