Blog: Dean BestTalk of merger between Ahold and Delhaize returns

Dean Best | 11 May 2015

[12 May 2015: An update since this blog was published last night. Ahold has now confirmed the two sides are in talks].

Over the weekend, there were fresh claims Europe-based food retailers Ahold and Delhaize are in discussions to join forces.

Belgian newspapers De Tijd and L'Echo said the grocers were in preliminary talks. The two companies have often been touted as potential partners, although they have, at various times, brushed off the notion of a merger.

Shares in both companies jumped today (11 May) although it is too early to say if a deal will happen.

This morning, Reuters said a source familiar with the matter had told the news agency the retailers "are sniffing around, exploring the options, but it's very early days".

The Financial Times reported this afternoon the discussions were at an extremely early stage. "Don't expect anything shortly, if it all," one unnamed person said to be involved told the newspaper.

Not all analysts were cheered by the latest talk. Sanford Bernstein analyst Bruno Monteyne, who covers Ahold's stock, said the move would be "a very bad idea".

Monteyne said: "Cost savings in retail acquisitions or mergers are highest when there is a large overlap and local scale economics improve. In this case there is very limited local overlap. Head office integration ... means years of post-merger integration projects, distracting from a retailer's core purpose: competing locally for consumers."

He added: "Big M&A in food retail doesn't work, and with reason: We struggle to think of any proven
successful big M&A deal in food retail. [There are] plenty of examples of failed deals - Morrisons, Carrefour, etc.In our view M&A deals for growth can work but M&A deals to fix trading performances don't work."

Others saw benefits. "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," Jefferies analysts James Grzinic said in a note, according to Bloomberg.

A number of analysts have pointed to the geographic fit of the retailer's operations, with most of their stores in the Benelux markets and in the eastern part of the US.

However, Ahold has, broadly, been the better-performing of the two in recent years. Delhaize has sold off outlets in the US and its 2011 acquisition of Balkans retailer Delta Maxi underwhelming analysts.

Suppliers will be watching developments closely.

Sectors: Mergers & acquisitions, Retail

Companies: Ahold


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