The Swedish Competition Authority has approved Axfood's acquisition of the wholesale business Bergendahls Food as well as a minority stake in City Gross as part of a strategic partnership.
The acquisition creates economies of scale and synergies for the two groups, and through greater efficiency and improvement in the assortment and logistics, the deal will also benefit wholesale customers and Swedish consumers.
The Transaction
On 31 May 2021, Axfood announced that it has reached an agreement with Bergendahl & Son AB (“Bergendahls”) to acquire 100% of Bergendahl Food AB (“Bergendahl Wholesale”).
In addition, as part of a strategic partnership, Axfood will acquire a minority stake corresponding to 9.9% of the shares in City Gross Sverige AB (“City Gross”) with an option to increase its total shareholding to 30%.
The initial consideration amounts to SEK 1.8 billion on a cash and debt-free basis, and upon full exercise of the call option, the total consideration amounts to SEK 2.5 billion, of which SEK 1.5 billion pertains to Bergendahl Wholesale.
The transaction is expected to create annual cost synergies of approximately SEK 200 million that are expected to be realised successively through 2025.
Excluding integration and transaction costs, the company hopes the acquisition to make a positive contribution to its earnings per share from 2022.
The decision to approve the deal was reached after Axfood made certain voluntary undertakings with respect to wholesale customers pertaining to extensions of contracts with existing terms and with respect to certain new actors which shall have the right to sign delivery agreements with Axfood.
The transaction will close on 1 October this year.
Integration
The integration between Bergendahl Wholesale and Axfood’s purchasing and logistics company Dagab will begin once the transaction has been completed.
City Gross will continue to be a standalone grocery chain, but will be integrated with Axfood’s IT infrastructure and will be supported by the new, coordinated purchasing and logistics operation in Dagab through a 15-year delivery and cooperation agreement that is part of the partnership.
In Axfood’s financial reporting, Bergendahl Wholesale will be included in the Dagab segment.
The minority stake in City Gross will be reported in accordance with the equity method in the Willys segment, in which Willys Hemma and Eurocash are also reported.
Share Issue
The acquisition will be financed through a combination of existing cash and credit facilities.
To ensure a strong financial position over time, Axfood intends to carry out a new share issue of SEK 1.5 billion with preferential rights for existing shareholders.
Axfood’s board of directors has decided to adjust the timing of the issue to Axfood’s capital structure and capital requirements, with respect to among other things investments in automation in the logistics operations.
Instead of carrying out the issue during the fourth quarter of 2021 as previously communicated, a proposal will be made to Axfood’s AGM on 23 March 2022 to authorise the board to decide on a new issue of shares for implementation in 2022.
Axfood’s largest shareholder, Axel Johnson AB, which represents 50.1% of the shares, has undertaken to vote in favour of the Board’s proposal and to subscribe for its pro rata share in the rights issue.
Integration and transaction costs related to the acquisition are estimated to amount to approximately SEK 200 million during the 2021-2023 period.
The company reported acquisition costs of SEK 54 million in the second quarter of 2021.
Acquisition and integration costs are estimated to be approximately SEK 20 million in the third quarter of 2021, and approximately SEK 20 million in the fourth quarter of 2021, the company added.
© 2021 European Supermarket Magazine. Article by Conor Farrelly. For more Supply Chain news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.
