Ahold, Delhaize weigh merger to ally U.S. supermarket chains

AMSTERDAM – Royal Ahold NV, owner of Stop & Shop, and Delhaize Group, owner of Hannaford, confirmed they’re in merger talks to potentially create the fifth-biggest U.S. supermarket retailer amid increased competition from Wal-Mart Stores Inc.

The discussions are “preliminary” and may not result in a transaction, the European owners of the Stop & Shop and Food Lion chains said in separate statements Tuesday. The stocks extended gains from Monday when the talks were first reported.

Combining Zaandam, Netherlands-based Ahold and Brussels-based Delhaize would create a business with sales exceeding 54 billion euros ($60 billion) and more than 4 percent of the U.S. grocery market, according to analysts at Natixis. In Europe, the merged business would become the fourth-biggest food retailer, Natixis said. A deal is more likely now that Delhaize has overhauled its board to loosen the company’s ties to its founding family.

“We assume a 50/50 chance of a deal materializing,” James Grzinic, an analyst at Jefferies in London, said in a note. “This may appear optimistic, given the early nature that potential negotiations could be at. However, we do not see material strategic alternatives for Ahold, while we suspect that Delhaize shareholders would be willing to entertain an exit at a suitable control premium.” Grzinic raised Delhaize to buy from hold, and Ahold to hold from underperform.

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Delhaize rose as much as 3.6 percent to 85.88 euros in early Brussels trading, valuing the Belgian company at 8.9 billion euros. Ahold gained as much as 3.7 percent in Amsterdam, giving it a market value of 16.9 billion euros. Since the end of last week, the stocks have advanced 17 percent and 8.3 percent, respectively.

Create savings

Both retailers operate supermarkets on the East Coast of the U.S. and in Benelux, encouraging regular speculation over the past decade of a possible merger. A merger would create savings of as much as 600 million euros, according to analysts, helping deflect intensifying competition in the U.S.

Ahold’s Giant Landover chain, which operates in Virginia, Maryland, Delaware and Washington, D.C., has been hurt by competitors opening new stores, while the market in New England, where it operates Stop & Shop, has been stagnant, the company has said. Delhaize’s Food Lion and Hannaford face challenges from Wal-Mart’s addition of smaller-format grocery stores, while Harris Teeter is cutting prices under the ownership of Kroger Co.

A merger would be “somewhat defensive in nature,” said Tony Shiret, an analyst at BESI Research in London. A deal now would make more sense than in the past, he said.

More International

Delhaize’s board is more international than in 2007, the last time merger speculation cropped up, with fewer Belgians and more Americans, reflecting the company’s increased U.S. presence. The company has brought in new management and overhauled its board to loosen its ties to its founding family.

Savings and revenue benefits resulting from a transaction would mostly come from overhead costs and online, where Ahold is more advanced than Delhaize, said Joost van Beek, an analyst for Theodoor Gilissen Bankiers.

“It then turns out to be a situation in which Delhaize benefits more from Ahold than the other way around,” he said.

Ahold reported 1.3 billion euros in online sales last year, representing about 4 percent of total revenue. The company set a goal last year to achieve 2.5 billion euros in sales for its online units by the end of 2017.

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