Dick Boer (left), chief executive of Dutch-based supermarkets operator Ahold, and Frans Muller, chief executive of Belgian supermarket chain Delhaize, shake their hands after a joint news conference in Brussels yesterday. The deal between them will create a company based in Ahold’s Dutch homeland and run by Boer. Ahold investors will own 61% of the enlarged group.
Bloomberg/Amsterdam
Royal Ahold agreed to acquire Delhaize Group for about €9.32bn ($10.4bn) in shares, creating the fifth-biggest US supermarket retailer in the industry’s biggest transaction for almost a decade.
The deal, which follows more than a month of talks between the European owners of the Stop & Shop and Food Lion chains, will create a company based in Ahold’s Dutch homeland and run by its chief executive officer Dick Boer. Ahold investors will own 61% of the enlarged group.
“Ahold is clearly taking the lead in this transaction,” said Alan Vandenberghe, an analyst at KBC Securities. “Our first take is that the merger agreement comes short of expectations for Delhaize investors.”
Ahold shares rose as much as 4.8%, while Delhaize dropped as much as 5.4%, erasing part of Tuesday’s 8.4% gain after the deal was reported to be close.
The merged business, to be called Ahold Delhaize, will have annual revenue exceeding €54bn from more than 6,500 stores worldwide, including Albert Heijn in the Netherlands and Tom & Co in Belgium. The combination follows years of speculation and has been hastened by increased competition for both grocers in the US from discounters such as Wal-Mart Stores and Aldi Stores.
Ahold and Brussels-based Delhaize run supermarkets on the US East Coast in addition to their neighbouring home markets.
Delhaize investors will get 4.75 Ahold shares for each share they own. That’s worth about €90 a share, based on Tuesday’s closing price. Ahold said it plans to return €1bn to shareholders by consolidating its stock, a mechanism that it used two years ago, chief financial officer Jeff Carr said on a conference call with analysts.
The merger is forecast to create annual savings of €500mn within three years of being completed, which the companies expect to happen in mid-2016.
The yearlong process to get the deal done, including gaining necessary antitrust approvals, “may be a slight disappointment,” analysts at Exane BNP Paribas said in a note.
The transaction is unlikely to fall foul of competition regulators, analysts have predicted. Fewer than 5% of the combined company’s US stores can genuinely be described as overlapping, Barclays said in a May 13 note. Ahold’s 28 Belgian stores may be the only other issue, it said.
Achieving the projected synergies will involve costs of €350mn, added to which there are as much as €100mn in transaction fees, Ahold’s Carr said.
The deal is expected to add to the new company’s earnings in the first year, he said.
Bringing the two companies together will help them fight escalating competition in the US Ahold’s Giant chain, which operates in Virginia, Maryland, Delaware and Washington, DC, has been hurt by competitors opening new stores, while the market in New England has been stagnant, the company has said. Delhaize’s Food Lion faces challenges from Wal-Mart’s addition of smaller-format grocery stores, while Harris Teeter is cutting prices under the ownership of Kroger Co.
Ahold might also help its Belgian rival come up to speed on Internet shopping.
The company owns Bol.com, the largest online retailer in the Netherlands. “Delhaize, having somewhat lagged the online trend, could benefit from Ahold’s vast experience in the matter,” ING analyst Matthias Maenhaut said.
A breakup fee of €150mn will apply if either company withdraws from the transaction.
Goldman Sachs Group and JPMorgan Chase & Co advised Ahold, while Bank of America Merrill Lynch and Deutsche Bank were lead advisers to Delhaize, which also consulted Lazard.
