By Ian Walker And Annie Gasparro
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.
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
many shoppers in Europe are choosing to buy groceries online. Tesco
PLC, the U.K. market leader, last month reported a full-year loss
of GBP6.38 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 as Whole 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.
Delhaize's overall operating profit fell 21% to EUR423 million
($474 million) last year, while Ahold's was up 0.9% at EUR1.25
billion ($1.4 billion).
"They haven't really lit any fires lately," said Craig
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 EUR500
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.
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 EUR1 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.
Ian Walker contributed to this article.
Write to Ian Walker at ian.walker@wsj.com and Annie Gasparro at
annie.gasparro@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires