The Co-operative Group is poised to jump back into the supermarket big league by completing its long-awaited £1.6 billion takeover of Somerfield.

Sources close to both companies said that terms had been agreed after months of talks and that an announcement should come this week.

The takeover would trigger a windfall for Robert Tchenguiz, the property tycoon, who holds a 30 per cent stake in Somerfield, as well as his fellow shareholders Apax, Barclays Capital and Kaupthing, the Icelandic bank.

For the Co-op, the deal is central to its hopes of reviving memories of the 1960s, when the group, famed for its “divi” card, became Britain's biggest grocery retailer with about 13 million customer-members.

The enlarged Manchester-based group will have annual sales of more than £10 billion and a market share of almost 8 per cent, closing the gap on Wm Morrison, the fourth-biggest supermarket chain in the country. Somerfield's 900 stores will take the Co-op's portfolio to more than 3,100 supermarkets and convenience sites.

Peter Marks, chief executive of the Co-op, said last month: “Manchester is the home of Britain's premier football team, so in five years' time I'd like it to be home of Britain's premier retail brand. That's where we are heading and I think we have the capacity and ambition to achieve it.”

The takeover will mark the second transforming deal for the group in the space of a year.

Last July, it merged with United Co-operatives, bringing together Britain's two most powerful regional Co-op movements. An unprecedented three-year, £1.5 billion investment programme is being rolled out to modernise the group's convenience stores as well as its travel agents and funeral parlours under a single Co-op brand.

The Co-op's food range has been overhauled by Guy McCracken, the former Marks & Spencer executive, who has extended the “Grown by Us” label, sourced from the Co-op's own farmers and launched a “Truly Irresistable” brand. The transformation marks a stark contrast to a decade ago, when, after a long period of decline, the Co-op almost fell to a takeover by Andrew Regan, the entrepreneur.

One management consultant said: “Somerfield is a transforming deal for the Co-op. Their business margins will go up, their scale will go up and it gives them a really strong platform for future growth. The thing that's really interesting is just how much [the Co-op] has changed. They are far more like a Tesco Express or Tesco Metro these days.”

About 120 Somerfield stores are expected to be sold off by the Co-op to rival supermarket groups, but the deal is still likely to attract the scrutiny of the Office of Fair Trading.

Somerfield was put up for sale by the Apax-led consortium in January. It bought the business for £1.1 billion in 2005, but its hope of selling at £2.5 billion were dashed by the credit crunch.

Asda is understood to have tabled a highly conditional offer for the chain last summer, its second within a year, but was unable to agree on price.

The Apax-led consortium is set to retain some of the Somerfield store freeholds under the Co-op deal.

Greg Lawless, retail analyst for Blue Oar Securities, said: “There's a big execution risk, but this deal could do for the Co-op what buying Safeway has done for Morrisons. It should propel the Co-op back into the big time.”

Market share

Tesco 31.6 per cent
Asda 16.7 per cent
Sainsbury's 15.9 per cent
Morrisons 11.5 per cent
Co-op, Somerfield 7.7 per cent
Waitrose 3.8 per cent

Source: TNS

Times Recommends

• EMI gambles on £400m pact to beat the bank
• Chancellor must find extra £10bn in savings
• Tesco’s secret chain charges customers more