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  1. Analysis
November 29, 2011

Focus: Ahold need not fear Jumbo C1000 alliance – analysts

Analysts say Jumbo's acquisition of rival retailer C1000 will not threaten the balance of power in the Dutch grocery sector.

Analysts say Jumbo’s acquisition of rival retailer C1000 will not threaten the balance of power in the Dutch grocery sector.

On Thursday (24 November) Jumbo announced the acquisition in a deal worth an estimated EUR900m (US$1.2bn) to EUR1bn, creating the country’s second largest retailer after Ahold’s Albert Heijn chain.

The sale, which is still subject to Dutch competition authority approval, caused a slight drop in Jumbo’s share price, despite its own estimates that the deal will create a combined turnover of EUR7.5bn, a total of 725 stores and a market share of approximately 23%. Jumbo added that the new business will identify synergies, co-ordinate best practice and utilise its “clout” to grow market share.

A retail analyst, who did not wish to be named said the share price drop was an “overreaction” from the market. However he also felt that the acquisition is the latest chapter in a process of consolidation in the Dutch retail market and there will not be a major shift in power as a result. In a large part this is because C1000 and Jumbo were already part of the same buying group and will not be able to “magic up synergies”.

He said: “It won’t change the competitive outlook materially, as far as Ahold is concerned. Albert Heijn is in very good shape and has a lot of scope and opportunity for growth.

“It will continue to be able to grow and grow profitability.”

RBS analyst Justin Scarborough concurs with this assessment, pointing out that Albert Heijn combines excellent locations, a strong private-label offering and competitive pricing.

An analyst note from Bernstein Research admits Jumbo and C1000 combined may be a threat.

It said: “Ultimately the emergence of a strong number two player could pressure Ahold’s Dutch margins as its relative scale advantage is eroded.”

However, in the short term, Bernstein expects Ahold to benefit from a “benign competitive environment” as Jumbo integrates the C1000 business. The merger, which Jumbo expects to take place early next year, presents “significant execution risk” in the post-merger integration process because of the characteristics of the two businesses. It says the two “differing cultures” of private equity and family ownership will raise a number of questions, especially given the relatively equal size of the merger partners.

“We believe that any dislocation of trade provides an opportunity for the Ahold to more easily pick up share”, the note added.

“In general the complexity and high frequency of retail businesses makes the post merger integration quite challenging.”

The note highlighted several recent examples of difficult transitional mergers, such as Morrisons and Safeway, Carrefour and Promodes, and Co-Op and Somerfield.

Finally, Bernstein sees opportunity for Ahold if Holland’s anti-trust regulator requires Jumbo to dispose of any stores, similar to the way Asda had to divest a number of stores following its acquisition of Netto in the UK.

If Jumbo is forced to dispose of stores – it had to dispose of 43 of the 220 Super de Boer stores it acquired from French retail giant Casino two years ago – it could create an opportunity for Ahold to acquire additional space in Holland.

A spokesperson for Jumbo could not be reached for comment.

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