The Co-operative Group today hailed a “transformational deal” as it bought Somerfield for £1.57 billion and cemented its position as Britain’s fifth biggest supermarket chain.

Peter Marks, Co-op chief executive, said the acquisition would lead a renaissance of the Co-op brand across the country and provide a greater choice for consumers.

“This is great for our business and in my view propels us back to the Premiership of food retailing,” he said. “People talk about the Big Four, I hope people will soon talk about the Big Five.

“I don’t know if Sir Terry Leahy will be worried but I would say they have all got to start looking over their shoulders. The Co-op is coming back big style.”

The debt-funded deal is being backed by Barclays, Lloyds TSB, Royal Bank of Scotland, Bank of Ireland as well as the Co-op Bank. It triggers a windfall for Robert Tchenguiz, the property tycoon, who holds a 30 per cent stake in Somerfield and his fellow shareholders such as Apax, Barclays Capital, and Kaupthing.

The Apax-led consortium beat the Co-op to Somerfield three years ago when it took the business private in a £1.1 billion takeover.

The enlarged Co-op business will have more than 3,000 stores and combined net sales of £8 billion and doubles the Co-op's share of Britain's grocery market to almost 8 per cent.

The Office of Fair Trading is almost certain to study the deal, which could hold up completion for a number of months. Around 120 of Somerfield’s 880 stores are expected to be sold on to rivals, such as Tesco and Asda to clear regulatory hurdles.

Mr Marks said: “There is a strong strategic fit between the two businesses, with both focused on the highly competitive top-up and convenience shopping market.

“We anticipate real cost and revenue synergies, enabling us to enhance still further the overall value we deliver to our customers.

“Given a deal of this nature, there are likely to be some local competition issues. We are confident we will be able to work through these with the Office of Fair Trading.”

The Institute of Grocery Distribution said the combined Co-op-Somerfield business was well placed to capitalise on emerging consumer and economic trends.

Louise Spilliard, IGD director of research said: "Both organisations have made great strides in efficiency in recent years, through very different steps. The new business is well-placed to capitalise on trends we have identified in the UK market, particularly shoppers' increasing appetite for top-up convenience shopping, local shopping, and for ethical foods."

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