Brussels-based food retailer Delhaize and Zaandam, Holland-headquartered supermarket operator Royal Ahold NV are engaged in serious discussions about a possible business merger, according to recent reports in Belgian and Dutch newspapers.
Spokesmen from both companies declined to comment on the speculation. According to the French language financial paper L’Echo, the chains participated in merger talks in 2007, which did come to fruition.
The price for Delhaize stock soared 19% to EUR 86.08 per share in trading on May 11, while Ahold shares rose 10% to EUR 18.97.
Ahold, which employs approximately 121,000 people at more than 3,000 locations around the world, rang up better than anticipated fourth quarter 2014 turnover of EUR 219 million. Much of the gain was posted in the United States, where its stake includes the Stop & Shop and Giant Landover chains on the East Coast.
Delhaize, capitalized at EUR 7.53 billion, generated EUR 173 million in sales during the first quarter of 2015 – up +2.2%. The US market figured prominently in the growth rate, as revenues generated at its Food Lion stores advanced by +2.5%, compared with -2.8% in Belgium and -0.8% in Southeastern Europe.
“In Belgium, following the agreement with our social partners on the Transformation Plan on February 23, we are implementing significant changes required to revitalize our business,” said Delhaize CEO Frans Muller on April 29, prior to the merger rumors. “During the first quarter, our profitability was impacted by investments in prices, promotions and marketing expenses, but we saw a gradual improvement in our revenue and market share trends. We expect revenues and profitability to improve in the second half of the year.”
Delhaize, which employs approximately 152,500 people, operates more than 3,300 stores in seven countries on three continents. Last November it signed an agreement to sell its 66 Bottom Dollar Food outlets in the United States to discount grocery retailer ALDI Inc. The $15 million deal, which includes the assumption of associated lease liabilities, encompassed 66 Pennsylvania outlets in the greater Philadelphia and Pittsburgh markets. The transaction was expected to result in asset impairment and other charges of approximately $180 million for Delhaize.
A merger between the Delhaize Group and Ahold could translate to operational savings in the range of EUR 600 million, according to James Grzinic, an analyst with London-based Jefferies.
“Ultimately, both groups would benefit from a transformational deal in order to improve their structural prospects, and that is why we expect the likelihood of a combination to be high,” he noted.