Interview: Full steam ahead for Hakon with ICA deal
Sweden-based retailer ICA now has one owner after Ahold, the Dutch retail giant and its largest shareholder, sold out to venture partner Hakon Invest, the Swedish investment fund. Michelle Russell spoke with Hakon CFO Göran Blomberg about Hakon's strategy for the business and the benefits he hopes the deal will bring.
Swedish investment fund Hakon Invest yesterday (11 February) agreed to pay Dutch retail giant Ahold around SEK20bn (US$1.96bn) for full control of ICA and the retailer's 2,000 supermarkets across Sweden, Norway and the Baltics.
Hakon's stock price climbed nearly 17% in early morning trading in Stockholm on news of the deal, which came five months after Ahold announced it was weighing up its options on its 60% stake in ICA.
Ahold and Hakon, which owns 40% of ICA, had run the retailer since 2000 and the fund was keen to remain an investor in the supermarket chain.
The SEK1.2bn (US$1.6bn) cash deal will see Hakon change its name to ICA Gruppen. The company holds separate shareholdings in five portfolio companies including Hemtex, Cervera, Kjell & Co but ICA remains its major shareholding.
The deal will be financed with existing cash and a secured bridge financing from Handelsbanken and Nordea.
Hakon, which had first refusal of the stake under its agreement with Ahold, said it had conducted a "careful evaluation" of various possible alternatives for a change of ownership in ICA, including an IPO.
"There were different options, one of them was an IPO, one was to sell to somebody else but we found this was the best solution for all involved," Blomberg tells just-food.
Blomberg says the focus for ICA will be to build on its four business areas of food, banking, real estate and non-food. Food retail, however, will be the primary focus, he says. For ICA, food accounts for around 85-90% of its turnover, Blomberg says.
"This will be more a food retail company that has four main business areas, but food being the main one. There are also other areas that will support the food business. For example, we already have the customers that are coming in two or three times a week and you find that you can offer the them something else while they are already in the store. This is something that will be natural to develop," Blomberg explains.
He adds: "When it comes to turnover, food is the major contributor but real estate is an important part of the EBIT. It is around one-third of EBITDA so it's an important part of the profit making."
Despite his optimism for the future, Blomberg is realistic about ICA's immediate prospects. In Sweden, he says, ICA has "outperformed the market" but he admits Norway remains a concern.
Alongside the deal with Ahold, ICA reported its results for 2012. It revealed its Norwegian business failed overall to keep pace with the market, with net sales up 1.3% in local currency. In contrast, ICA's three Baltic countries produced "good economic growth" in 2012, it said, with sales up 3.3%. The retailer noted that one of its priorities in 2013 will be "achieving a turnaround" in Norway.
"We have had a development in Sweden for the last four quarters that has outperformed the market and we will continue to work in the same direction to grow market share," Blomberg says. "The main challenge for ICA is to turnaround the Norwegian business as it hasn't been profitable for a number of years."
However, he adds: "There is a very large turnaround possibility and there is a good swing effect if we can turn [the business] around. We have implemented lots of different activities in order to make the business more healthy. We view it in an optimistic way. If we can turn it around to something that is profitable, it will be a large swing factor for the company."
ICA has embarked on a number of initiatives in Norway to try to improve its operating performance, including the sale of its Maxi outlets and its deal with Norgesgruppen that will see the two firms work together on sourcing and distribution. The deal coordinates distribution and logistics between ICA Norway and Norgesgruppen's wholesale company, Asko.
"We have a new agreement for purchasing and it will be a key factor in turning the business around, to get the purchase prices down a huge amount and at the same time make the logistical part of the business more efficient," Blomberg says.
"We will start to co-operate on logistics at the same time as we do on the buying side. The main aim is to ensure this cooperation works smoothly and have all the food and [non-food] that we buy into the stores at the right price. The plan is solid and we are hopeful that we can do this."
Blomberg says the focus for the Norwegian business now is to ensure they put it in "better shape".
The deal for ICA needs the approval of the retailer's franchisees, as well as anti-trust authorities. Blomberg says he is optimistic there will be no problems in closing the deal.
"It is more formalistic. It's about competition authorities that have to approve the deal and also from the financial authorities in Sweden as there is a bank involved. When it cones to the competition side, nothing will really change with regard to suppliers, the market and how we behave toward the customer, so we see it as more of a formalistic procedure.
"Of course the competition authority might say this will need more investigation so it might take more time. But as we see it now, the normal outcome would be that this is a stage one process so we expect the deal to closeby the end of March beginning of April. That's the plan for the moment."
- Analysis: Is Heinz, Kraft merger "a growth story"?
- The challenges awaiting ConAgra's new CEO
- M&A Watch: Who could be on 3G Capital's radar?
- Focus: Can Mars gain share in Indian chocolate?
- The challenge of digital marketing and ROI
- UPDATE: Heinz, Kraft strike merger agreement
- Fatal explosion at French desserts firm Senagral
- Kraft "in buyout talks" with Heinz owner 3G
- Infographic: Heinz, Kraft unveil combined business
- Buffett: Kraft Heinz to withstand health focus