Ahold, Delhaize agree to $28 billion merger

AMSTERDAM: Dutch grocer Ahold has agreed to buy Belgian rival Delhaize in a 25 billion-euro ($28 billion) merger deal that will create one of the biggest food retailers in the United States and a major player in Europe.

Ahold will take a 61 percent stake in the new company, which will have 54.1 billion euros ($61 billion) in annual sales from 6,500 stores worldwide, including more than 2,000 in the United States and the rest in the Netherlands, Belgium and eastern Europe.
The Dutch group will pay 4.75 shares for every Delhaize share, valuing Delhaize at about 9.3 billion euros, or 90 euros a share, based on closing prices on Tuesday.
However, Ahold said it would return 1 billion euros to its shareholders with a special dividend and reverse stock split prior to the merger.
Ahold shares were down 2 percent at 18.53 euros by 1225 GMT, valuing the group at 16.87 billion euros, while Delhaize was off 6 percent at 82.58 euros, giving the Belgian company a market value of 8.7 billion euros.
Since merger talks were announced on May 11, shares in Ahold have gained more than 10 percent and Delhaize more than 20 percent.
The deal should give the two firms much-needed buying power in the fiercely competitive US grocery market after a recent wave of consolidation, as well as help them face the threat posed by booming discounters such as Lidl in Europe.
The merged group would be Europe's largest listed food retailer by market capitalization, ahead of Tesco and Carrefour, which both have far greater annual sales.
Ahold, which operates the Netherlands' dominant grocery chain Albert Heijn, derives almost two-thirds of its sales from the Stop & Shop and Giant supermarkets along the northeast coast of the United States.
Similarly Delhaize is Belgium's biggest food retailer gets two thirds of sales from its Food Lion and Hannaford chains in the eastern United Sates.
Together, they account for almost 5 percent of the fragmented US grocery market, behind Wal Mart, Kroger Co. and the recently merged Albertsons/Safeway, according to market data firm Euromonitor.
Ahold and Delhaize have been squeezed in the United States in recent years by Wal Mart's move to open more small-format stores as well as by Kroger's purchase of North Carolina-based Harris Teeter.
"Both businesses are weakly positioned for their respective long-term challenges in the US. Given this backdrop, a combination of Ahold and Delhaize should provide both with greater staying power," Jefferies analysts wrote in a note.
Ahold Chief Executive Dick Boer, who will also lead the combined company, said he did not expect any difficulties receiving regulatory approval for the deal, which is set to close in mid-2016.
"We're really complementary to each other in most of our markets, that's the uniqueness of this merger," he said.
One source with knowledge of the deal said they expected the firms to make small divestitures in the United States to overcome antitrust issues there.
The two groups had previously held advanced negotiations on a merger in 2006 and 2007 but the deal reportedly foundered due to opposition from the Delhaize founding family.
However, the arrival of a new Dutch chief executive at Delhaize in 2013 — Frans Muller — paved the way for renewed talks with fellow Dutchman Boer. Muller will be deputy CEO of the new group and oversee the integration.
A source familiar with the merger discussions said that Boer, 57, could step down within several years, opening the way for Muller to take the top job if the merger is successful.
"The Dutch realized the only way to do this was to have a 50-50 governance split," he said.
The two firms are targeting annual cost savings of 500 million euros by three years after completion of the deal, with savings coming from combining supplier networks and distribution and leveraging scale in own-brand products.
One investor at an institution that owns a significant stake in Ahold said he would approve the merger.
"The deal creates value and a more solid combined company," he said.
"On the flip side, it also brings with it a risk of how successful they will be in integrating."
The merger will also give Delhaize access to Ahold's relatively strong online retail operation.
Ahold owns the Chicago-based online grocery service Peapod, which has quietly become the largest online grocer in the United States by sales, drawing heavily on Ahold's grocery distribution network — though Wal Mart and Amazon are quickly expanding in this field.
"We believe there is tremendous opportunity for us by leveraging this across to the Delhaize network," Delhaize CEO Frans Muller told a press conference in Brussels.