The announcement earlier this week that Ahold and Delhaize are now in 'the final stages of negotiations' was met with a lively response from several top financial analysts. Here are a few snippets.
Barclays European Retail Equity Research said that the move "comes as no great surprise following the admission (12 May) that both companies were in preliminary discussions and following Ahold’s recent statement (23 June) that they were in the 'the final stages of negotiations'. As we noted in an earlier report, the two companies are a good fit in many respects. The shares have already risen materially since the news broke in May. On the positive side, the assurance that the joint company will be cash-generative means that Ahold’s buybacks could resume at some point, while the accretion will likely be in excess of 20% (more for Delhaize) although we ignore at this stage how much has to be reinvested."
Patrick Roquas, Director Equity Research at Rabobank said, "the details of the transaction seem broadly in line with expectations: Based on a initial rough estimate, the deal adds €3 to Ahold’s current SP. This is based on a NPV of €4bn in synergies. Ahold will issue c. 480m new shares (101m Delhaize shares x the exchange rate of 4.75), bringing the total amount of Ahold shares at c. 1,360m. The value of synergies of €4bn divided by a total of 1,360m shares, gives €2.95 per Ahold share. […] Both companies are highly cash generative, which will allow Ahold Delhaize to invest in future growth and deliver attractive returns to shareholders."
Bernstein Research said that "on initial inspection, the deal looks good for Ahold shareholders; they are getting €1 billion in cash and paying only a 27% premium for Delhaize, well below some of the initial estimates. However to reach a full conclusion, we will have to see what synergies the management believe exist, how much consensus builds in and what the execution risk surrounding this. […] Performing this type of transaction, means that Ahold is increasing leverage (something we have wanted it to do), but importantly the cash it is raising from this leverage is being paid to Ahold shareholders not Delhaize shareholders."
And lastly, Keith Anderson, VP of Strategy & Insights for e-commerce insights company Profitero said, "The grocery business is under immense pressure, both globally and regionally in Europe and North America. Increasing transparency and the growth of discounters are intensifying competition on price; growth in online grocery demands new capabilities; and shoppers' preferences are evolving at increasing pace. The current wave of consolidation may bring operational efficiencies, but the key question is whether the combined entities will leverage their strengths to deliver a more relevant range, meaningful value, and a better shopping experience.
"Among their respective strengths, Delhaize has solid experience operating a multi-format portfolio, and Ahold has strong capability in online grocery. Along with other grocers, the new entity will need a compelling strategy and world class execution to thrive in a more dynamic competitive landscape. Now begins the complicated process of operational and organizational integration."
© 2015 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones
