Co-op’s £143m bid for Nisa to be put to the vote by members

Nisa has posted a note on its member forum this morning recommending a £143m offer for the mutually owned buying group from the Coop.

The group’s board “unanimously agreed” that the improved offer for the mutual, including more cash up front and a lower minimum order threshold, was sufficiently compelling to recommend it to Nisa’s 1,200 members.

The panel – comprising nine member directors, two non-execs (including chairman Peter Hartley), as well as newly appointed interim CEO Arnu Misra and CFO Robin Brown – had convened on Monday to consider the merits of the Co-op’s proposed deal, after a rival bid from Sainsbury’s failed to materialise.

In the forum note Hartley said: “While Nisa has made great strides in recent years and has the foundations in place to compete successfully, we are excited by the opportunity outlined in the Co-op proposal, and believe Co-op will help Nisa to provide members with a compelling customer proposition that will enable you to thrive.

“We are also excited by the prospect of working with a like-minded retailer, who focuses on local communities, and understands the mutuality and independence so highly valued by you.”

A letter with details of the offer will be sent out later today triggering a 28-day process in which Nisa’s future as an independent buying group is decided. It’s underpinned by a strict timetable. In a week’s time the offer itself will be sent out with a so-called ‘scheme of arrangement’, under which 75% of the members must vote for the change of ownership to enable a deal to be struck. Members will then have a 21-day period in which to decide which way they want to vote, with D-day expected to be on or around Friday 10 November.

During this time a national roadshow coordinated by retail director Nigel Grey will see representatives from both Nisa and the Co-op tour the country. While Hartley and member directors from the Nisa panel will be on the roadshow, executives are not expected to tour. The roadshow will visit six regions in the week commencing 16 October, starting with Scotland, followed by Leeds, Solihull, Bristol, Esltree and Belfast.

The Co-op’s offer is for 100% of the shares in Nisa Retail Limited for up to £137.5m, plus the payment of associated deal costs of up to £5.5m. This includes an initial payment of up to £20,000 per member. A payment of up to £1,654 per share, payable in three equal instalments in 2019, 2020 and 2021, resulting in a payment of up to £83.3m; an additional £30.4m in additional rebate paid quarterly in instalments of up to £1.9m over four years from June 2018; based on up to 1% of the rebateable sales for each member.

Co-op would also take on the existing Nisa debt of £105m as well as providing additional benefits, including access to its award-winning Co-op own-label range, a better fresh and chilled offer, the opportunity to apply to become a Co-op franchisee, as well as retention of their independence, involvement in a member-owned organisation and “the possibility to be part of regular senior management engagement meetings, held at a local level, and the ability to continue to have a voice on how Nisa is run”.

Co-op Food CEO Jo Whitfield said: “This acquisition provides the opportunity to create an even greater and more compelling member-led presence within the UK convenience sector. We believe we have presented a compelling offer for Nisa members, with a future proposition that would bring them our award winning own label products and wide range.

“Over the past three years, Co-op Food has been completely transformed through a convenience-led focus on delivering great value products for our members and creating real value for them and their communities.

“Co-op and Nisa have achieved so much on their own to support local communities, but together I believe we can go from strength to strength.

“If our offer is accepted by Nisa members and approved by the CMA, we can deliver a win-win for two member-led, community-focused organisations, and in the process create a distinctive footprint within the growing UK convenience retail sector.

“We are looking forward to meeting Nisa members at the roadshow events in the coming weeks, listening to their views and answering their questions.”

In a highly competitive market, the merits of teaming up with the UK’s sixth biggest grocery retailer – and the only one to specialise in convenience – under such generous terms looks compelling, especially since Nisa’s biggest customer, McColl’s, has terminated its contract from next April in favour of a new wholesale supply deal with Morrisons.

But key to the Co-op’s successful bid will be its ability to persuade the 25% of Nisa’s members who operate supermarkets, including the likes of Proudfoot, Filco, CK’s, Jempsons, Stans, Roy’s of Wroxham, that the Co-op can fulfil their needs.

The Co-op had previously planned to sell off its supermarkets, but initially out of necessity, it has found a way to make its supermarkets work again and will hope to persuade Nisa members with bigger stores that offering better quality and a enhanced range, supported by a 106-strong buying team (some 15 times the size of Nisa’s seven-strong trading team) it can not only meet their needs but better them.

This supermarket contingent is particularly important because many of these operators own the maximum 250 shares. (Other big shareholders include Ramsden’s, Bourne Leisure and MRG.)

The Co-op is also planning a sweetener for the 470 Nisa members with only one share. With each share expected to be valued at £2700 (a 24-25 times multiple on their £125 paper value), these shareholders are unlikely to enjoy a meaningful windfall from the sale of the business, but although the mutual does not operate under a one member one vote basis, they could yet prove crucial under Nisa’s convoluted corporate governance in sealing the deal.

Even if the Co-op’s offer is accepted, it will still be some considerable time before the deal could be completed, with an enquiry by the Competition and Markets Authority (CMA) likely to delay the merger until mid way through 2018. In the meantime, Nisa has recently secured a £200,000 loyalty bonus to 15 key Nisa employees to retain their services.