By Maarten van Tartwijk
Dutch food retailer Royal Ahold NV and Belgium's Delhaize Group
confirmed Tuesday they are in talks about a possible near-$26
billion merger that could create one of the largest supermarket
operators in the U.S.
Despite being based in Europe, both companies generate about 60%
of their sales in the U.S., primarily along the East Coast. Ahold
operates the Stop & Shop and Giant chains, as well as online
grocery store Peapod, while smaller rival Delhaize operates the
Food Lion and Hannaford banners.
No financial details of the potential deal were disclosed and
the companies cautioned that the talks might not result in any
deal. However, based on closing share prices Friday--before renewed
speculation about a deal surfaced--the merged company would be
valued at EUR22.91 billion ($25.79 billion).
Ahold and Delhaize, like midmarket retailers world-wide, find
themselves caught in a squeeze between discounters like Wal-Mart
Stores Inc. and Costco Wholesale Corp. 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.
Still, some analysts are skeptical about the potential tie-up.
"Cost savings in retail acquisitions or mergers are highest when
there is a large overlap and local scale economics improve,"
analysts at Bernstein said in a note on Monday. "In this case there
is very limited local overlap.... We think this is a bad deal for
Ahold investors."
David Payne, an analyst at Nomura, agreed that there are
relatively few synergies between the two companies' U.S.
operations. "We do believe there is at least shareholder appetite
for the simplification that combination (and later, perhaps,
separation of U.S. and European operations into two new companies)
would bring," he said in a research note.
A combination would 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.
Both stock soared on deal speculation Monday, with Delhaize up
14.5% and Ahold up 5.5%. In morning trading Tuesday, Delhaize was
up 1.1% to EUR83.84 and Ahold was up 1.8% to EUR18.51.
Ian Walker contributed to this article.
Write to Maarten van Tartwijk at maarten.vantartwijk@wsj.com
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