The chief executive of the Co-operative Group vowed to shake up Britain's supermarket sector yesterday after the self-styled ethical retailer agreed a £1.57 billion takeover of Somerfield.

Peter Marks, who took charge at the Co-op last year, said that the deal would help to lead a renaissance of the Co-op brand nationwide and provide a greater choice for consumers.

The enlarged business will have more than 3,000 predominantly convenience stores and will double the Co-op's market share to almost 8 per cent, making it Britain's fifth-biggest supermarket chain by some margin.

Mr Marks said: “This is great for our business and in my view propels us back to the Premiership of food retailing. People talk about the big four. I hope people will soon talk about the big five.”

The deal triggers an £800 million windfall for the Apax-led consortium that took Somerfield private three years ago, including an estimated £240 million for Robert Tchenguiz, the property tycoon.

While Mr Tchenguiz's windfall is double his original investment in 2005, it is dwarfed by the losses that he has suffered on stakes in J Sainsbury and Mitchells & Butlers over the past year. It is understood that part of the profit is earmarked to repay bank loans.

About 120 of Somerfield's 880 stores may be sold off because of competition concerns. The Manchester-based Co-op is also expected to close Somerfield's head office in Bristol, which employs 800 staff, once the deal is completed.

Mr Marks refused to comment on either point yesterday, but he insisted that the takeover was about building a new force in the grocery sector rather than cost-cutting.

He said that the acquisition would provide the “rocket fuel” for a transformation programme at the Co-op, which has included the refurbishment of hundreds of its grocery stores and high street travel agents under a unified brand. The Co-op brand will replace the Somerfield name.

The Co-op, Britain's biggest supermarket chain in the 1960s, has raised £2.2 billion of debt to fund the acquisition and provide the “wriggle room” for future investment, which Mr Marks said was a reflection of the financial community's confidence in his plans.

Somerfield has around £750 million of debt and reported underlying profits of £26.4 million in 2006-07.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts