By Ian Walker and Archie van Riemsdijk
European grocery chains Royal Ahold NV and Delhaize Group have
agreed to a merger, creating one of the largest supermarket
operators in the U.S.
The combined company would be valued at EUR26.07 billion ($29.11
billion) based on their closing share prices Tuesday.
Despite being based in Europe, both companies generate about 60%
of their sales in the U.S., primarily along the East Coast.
Netherlands-based Ahold operates the Stop & Shop and Giant
chains, as well as online grocery store Peapod, while Belgium's
Delhaize owns the Food Lion and Hannaford banners.
Under the deal, Delhaize shareholders will receive 4.75 Ahold
ordinary shares for each share held. Ahold shareholders will own
61% of the combined company's equity and Delhaize shareholders will
own the rest.
Having surged more than 8% Tuesday on Dutch media reports that
the companies were close to a deal, Delhaize shares were down 4.7%
Wednesday morning. Ahold shares were up 1.6%.
Ahold said it would terminate its continuing share-buyback
program and return EUR1 billion to shareholders via a capital
return and a reverse stock split before completion of the
transaction.
The combined board will be led by Mats Jansson, the current
chairman of Delhaize, with current Ahold Chief Executive Dick Boer
as CEO.
The new firm, Ahold Delhaize, will have more than 6,500 stores
with 375,000 workers able to serve over 50 million customers a week
in the U.S. and Europe.
The merger is expected to generate annual savings of EUR500
million to be realized in the third year after completion, the
companies said.
The deal comes at a time of upheaval in the retail industry on
both sides of the Atlantic. Consumers used to shopping in discount
stores during the recession haven't switched back to more
traditional retailers, while many are choosing to buy groceries
online.
The impact of the shift in habits has been substantial. In the
U.S., companies such as Costco Wholesale Corp.--as well as a surge
in shopping at dollar stores--have eaten away at the market share
of Wal-Mart Stores Inc., the world's biggest retailer. In Europe,
similar forces have battered Tesco PLC, the U.K. market leader that
last month reported a full-year loss of GBP6.38 billion ($9.95
billion), by far the steepest in its history.
Ahold and Delhaize, like midmarket retailers world-wide, find
themselves caught in a squeeze between discounters such as Costco
and high-end grocers like Whole Foods Market Inc. The two European
companies have been thinking about a combination for years,
reportedly having held talks in 2006, as they seek greater scale
and cost savings to take on the competition.
Analysts have said a combination of Ahold and Delhaize could
help resist the discounter threat in the U.S. and Europe, while
also creating cost savings and a much wider spread of stores on
both continents.
The combination will create one of the largest food retailers in
Europe and the U.S. with around EUR54 billion in annual sales.
Based on recent estimates by Morgan Stanley, a combination would
have a market share of around 4.2% in the U.S., making it the
country's fifth-largest food retailer.
On June 10, Dutch investor union VEB, on behalf of a group of
small shareholders, formally requested a meeting with Ahold's board
to address investors' concerns about the possible leaking of
sensitive information which may have affected the company's share
price.
Rumors of preliminary merger talks between the Dutch and Belgian
companies appeared in local media on Saturday, May 9. This left the
companies two days to confirm the matter before markets opened the
following Monday, VEB said at the time.
However, Ahold and Delhaize waited until Tuesday, May 12, to
confirm the talks, after Ahold's share price went up 5.5%. After
the confirmation, Ahold shares moved up a further 3%. "Shareholders
may have been disadvantaged by this late disclosure, for instance
those who sold their Ahold shares on Monday," VEB spokesman Eroll
Keyner said.
Write to Ian Walker at ian.walker@wsj.com and Archie van
Riemsdijk at archie.vanriemsdijk@wsj.com
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