Deal Unites Major Supermarket Players
With more than 6,500 stores, Ahold Delhaize expects to have the scale to innovate
The planned merger of Ahold NV and Delhaize Group would create one of the biggest U.S. supermarket chains, giving the grocers greater buying clout as they grapple with slow growth and intensifying competition from discounters and upscale chains.
The new company, Ahold Delhaize, will have more than 6,500 stores—including Food Lion—with 375,000 workers able to serve over 50 million customers a week in the U.S. and Europe. PHOTO: STEVE HELBER/ASSOCIATED PRESS
On Wednesday the two announced their all-stock deal to create a company with a market value of about $29 billion, combining Ahold, the Dutch owner of the Stop & Shop and Giant chains in the U.S., with Delhaize, the Belgian operator of American chains Food Lion and Hannaford. Ahold Delhaize, as the new company will be called, will be based in Europe but generate about 60% of its sales in the U.S.
Ahold Delhaize would have a 4.6% share of the U.S. grocery market, making it the fourth-largest player by revenue, according to research firm Euromonitor International, and would be among Europe’s largest food retailers.
With more than 6,500 stores on the two continents, Ahold Delhaize will employ 375,000 and serve up to 50 million customers a week.
The food-retail business is going through wrenching changes on both sides of the Atlantic. Many consumers who traded down to discount stores during the recession haven’t switched back to more traditional retailers. In the U.S., dollar stores and bulk retailers like Costco Wholesale Corp. have eaten away at the market share of Wal-Mart Stores Inc., the world’s biggest retailer, while some shoppers in Europe are choosing to buy groceries online. Tesco PLC, the U.K. market leader, last month reported a full-year loss of £6.38 billion ($9.95 billion), by far the steepest in its history.
The Ahold-Delhaize merger “adds scale, allows us [to invest more] in innovation, and provides opportunities to develop our store formats in a highly competitive market,” said Ahold Chief Executive Dick Boer, in an interview on Wednesday. Mr. Boer will be CEO of the combined company,
The deal would unite two players which, together have more than 2,000 stores in the U.S., with a major footprint on the East Coast. Ahold also owns the online grocer Peapod.
The companies have relatively little geographic overlap in the U.S. and could leverage their scale to lower transportation and warehousing costs, as well as garner more purchasing power with food suppliers, analysts said.
The companies, which mostly operate conventional supermarkets, are caught in a squeeze between heavy discounters on one side and then the higher-end brands, such asWhole Foods Market Inc., that appeal to U.S. consumers increasingly seeking out foods perceived as fresher and healthier. Ahold and Delhaize have been thinking about a combination for years, reportedly having held talks in 2006, as they seek greater scale and cost savings.
“What has put traditional grocers in a challenging position is they’re being competed with at the fringes—at the high end and low end and online,” said Keith Anderson, vice president of strategy and insights for Profitero, a retail consultancy. “It’s death by a thousand cuts.”
The deal would hasten consolidation in the U.S. and European grocery industries. In Europe, the companies face competition from discounters such as Aldi and Lidl.
In the past few years, U.S. chain Supervalu Inc. sold hundreds of Jewel-Osco and other stores to a private equity group running Albertson’s LLC. That combined company later bought Safeway Inc. Meanwhile, Kroger Co., the second-largest U.S. food retailer by sales after Wal-Mart, in 2014 bought Harris Teeter Inc., a high-end chain based on the East Coast.
MARKET TALK
Delhaize-Ahold Merger Is A Defensive Move The €26 billion merger between grocery chains Ahold and Delhaize is “as a defensive move of two companies that are struggling with harsh competition in the U.S. and a slowdown of momentum in Europe,” says Degroof bank analyst Hans D’Haese. The two companies are based in Europe, but both generate about 60% of their sales in the U.S. While Mr. D’Haese notes the merger creates a company with a “top-5 food retail combination,” he says he sees limited cross-Atlantic advantages—except for tax costs. The market is more upbeat on the news, with Ahold shares up 2% and Delhaize sharea are down 4.4%. (Natalia.drozdiak@wsj.com @Nat_droz)
In Birth of Retail Giant, Ahold Takes Lead In its merger agreement with Belgian peer Delhaize, announced Wednesday, Dutch food retailer Ahold is clearly taking the lead, KBC Securities analyst Alex Vandenberghe said. He added that the share exchange ratio of 4.75, which values Delhaize at €90 a share, comes short of expectations for Delhaize investors. Commending Ahold on its successful expansion strategy, KBC increases the price target for Ahold to €23 for Ahold and to €110 for Delhaize and both ratings to buy, from hold and accumulate respectively. Shares of Ahold are up 3% at €19.53 in Amsterdam. Delhaize is down 3% at €85,05 in Brussels. (Archie.VanRiemsdijk@wsj.com)
Market Talk is a stream of real-time news and market analysis that is available on Dow Jones Newswires
Delhaize’s overall operating profit fell 21% to €423 million ($474 million) last year, while Ahold’s was up 0.9% at €1.25 billion ($1.4 billion).
“They haven’t really lit any fires lately,” saidCraig Rosenblum, a grocery consultant at Willard Bishop. “This gives them a chance to reset a little bit and figure out what their strategy is going to be.”
Delhaize Chief Executive Frans Muller said both companies have taken significant steps to combat growing competition, adjusting their prices and adding more store brands, fresh produce and meat. “In the U.S., we can accelerate that improvement level to make it a better shopping experience for customers,” said Mr. Muller, who would become deputy CEO and chief integration officer.
The companies expect to generate annual savings of €500 million ($560 million) after three years. Such “savings are vital in a flat market,” said Kurt Jetta, a consumer products consultant and founder of the TABS Group, a business analytics firm.
Tanya Rivero and Brett Kendall discuss the halt of Sysco-US Foods merger, and Scott McCartney looks at the fight over the overhead luggage bin.
While the deal is subject to regulatory approval, analysts don’t expect antitrust issues to be a significant hurdle. But the combined company’s success hinges on whether it could garner more than cost savings. “Are the two companies going to be a better retailer as a result of consolidation or is it really just about economies of scale?” said Mr. Anderson of Profitero.
Under the deal, which the companies expect to complete in mid-2016, Ahold shareholders would own 61% of the combined company’s equity and Delhaize shareholders would own the rest. Mats Jansson, Delhaize chairman, would lead the combined board. The company would be based in the Netherlands.
Having surged more than 8% Tuesday on Dutch media reports that the companies were close to a deal, Delhaize shares dropped 7.7% Wednesday. Ahold shares fell 3.7%.
Delhaize shareholders would receive 4.75 Ahold ordinary shares for each share held. Ahold said it would terminate its continuing share-buyback program and return €1 billion to shareholders via a capital return and a reverse stock split before completion of the transaction.
Ahold owns the leading Netherlands grocery chain, Albert Heijn, and has stores in Belgium, the Czech Republic and elsewhere. Delhaize owns namesake stores in Belgium, Alfa Beta chains in Greece and other stores in Eastern Europe.
