European grocery chains Royal Ahold NV and Belgium's Delhaize
Group have agreed to a merger, creating one of the largest
supermarket operators in the U.S.
The combined company will be valued at €26.07 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.
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.
The combined board will be lead by Mats Jansson as chairman with
Dick Boer as chief executive.
The new firm, Ahold Delhaize, will have more than 6,500 stores
with 375,000 associates able to serve over 50 million customers a
week in the U.S. and Europe.
The merger is expected to generate annual savings of €500
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 £ 6.38 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 €54 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
of directors, to relieve concerns of investors 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
retailers were printed 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 another 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.
Maarten van Tartwijk, Bart Koster and Peter Evans contributed to
this article.
Write to Ian Walker at ian.walker@wsj.com and Archie van
Riemsdijk at archie.vanriemsdijk@wsj.com
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