Poundland is set to buy rival 99p Stores in a £55m cash and shares deal that Poundland said would improve choice, value and service for customers.
Both chains have grown rapidly in recent years following the demise of Woolworths in 2008 as bargain retailers have become a regular fixture on UK high streets.
Poundland will buy 251 shops, which trade as 99p Stores and Family Bargains serving more than two million customers.
Poundland, which floated on the stock market last year, will also pick up a warehouse and distribution centre in the transaction.
Chief executive Jim McCarthy said: “This is a good deal for both businesses and will benefit customers and shareholders.
“Through working together, Poundland will improve choice, value and service for 99p Stores’ customers, bringing Poundland’s know-how and range to 99p Stores.”
Family-run 99p Stores was founded by Nadir Lalani, helped by sons Hussein and Faisal.
Poundland is paying £47.5m in cash plus £7.5m in new shares. The deal will be partly funded by a share placing.
The firm said the deal was dependent on the approval of the Competition and Markets Authority (CMA) and talks with the regulator have already been held. Given the size of the two companies, the CMA may call on Poundland to sell some stores.
Poundland said that when the two businesses were fully integrated the deal is expected to enhance earnings per share.
Poundland has opened nearly 600 stores in the UK, Republic of Ireland and Spain since 1990
It said the deal will give it a bigger presence in the south of England where it is under-represented.
There is not yet a schedule for converting the stores into Poundland shops and this is expected to be done over a period of time.
99p Stores made annual underlying earnings of £6.1m on sales of £370.4m.