Royal Ahold has agreed to acquire Delhaize Group for about €9.32 billion in shares, creating the fifth-biggest US supermarket retailer in the industry’s biggest deal for almost a decade.
The deal, which follows more than a month of talks between the owners of the Stop & Shop and Food Lion chains, gives Ahold investors 61 per cent of the combined company, with the Dutch company’s chief executive officer, Dick Boer, being in charge.
"We believe that 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.”
After years of speculation, the deal has been hastened by increased competition in the US from retailers including Wal-Mart Stores. Together, the Dutch and Belgian grocers have annual sales exceeding €54 billion from more than 6,500 stores worldwide.
The merged business, to be called Ahold Delhaize, will control more than 4 per cent of the US grocery market and will also be Europe’s fourth-biggest food retailer, according to Natixis research.
Shares of Brussels-based Delhaize fell 2.5 per cent to €85.81 in the Belgian capital. They surged 8.4 per cent on reports that a deal was close and have risen 22 per cent since the close of trading on 8 May, the day before talks with Ahold were first reported. Ahold rose 3.4 per cent to €19.60 in Amsterdam.
Under the terms of the deal, Delhaize investors will get 4.75 Ahold shares for each share they own. That values Delhaize at about €90 a share. Ahold, based in Zaandam, Netherlands, said that it plans to return €1 billion to shareholders.
"On initial inspection, the deal looks good for Ahold shareholders. They are getting €1 billion in cash and paying only a 27-per-cent premium for Delhaize – well below some of the initial estimates,” said Bruno Monteyne, an analyst at Sanford C. Bernstein in London.
Both retailers run supermarkets on the US East Coast, in addition to their neighbouring home markets, encouraging speculation over the past decade of a possible merger. The deal is forecast to create annual savings of €500 million within three years of being completed, which the companies expect to happen in mid-2016.
Ahold said that it will end its share buy-back programme. It also plans a reverse stock split before completing the transaction.
The Dutch company’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.
The transaction is unlikely to fall foul of antitrust regulators, according to analysts. Fewer than 5 per cent of the combined company’s US stores can genuinely be described as overlapping, Barclays analysts said in a 13-May note. Ahold’s 28 Belgian stores may be the only other issue, they said.
The Dutch company’s largest acquisition had been its $3.4-billion purchase of US Foodservice in 2000.
News by Bloomberg, edited by ESM
