December saw an end to the wrangle over German supermarket chain Kaiser’s, South African retailers Steinhoff and Shoprite in talks over a possible combination and the recently-merged Ahold Delhaize outline its “Better Together” strategy.
After two years, a deal on Kaiser’s
After a two-year dispute, December saw German retail behemoths Edeka and Rewe strike a deal over the future of domestic supermarket chain Kaiser’s.
In late 2014, Edeka moved to buy the Kaiser’s chain from German retailer Tengelmann. The transaction was thwarted in the spring of 2015 by German’s competition watchdog, which claimed the deal would lead to a “significant deterioration of competition” in “many already highly-concentrated markets and neighbourhoods”. The regulator had concerns about competition in Greater Berlin, Munich and Upper Bavaria and North Rhine-Westphalia.
However, in March last year, German Economy Minister Sigmar Gabriel intervened, giving special permission for the acquisition provided no jobs were lost.
Rewe had been an opponent of Edeka’s move for Kaiser’s, arguing the takeover would hit jobs, and appealed Gabriel’s decision. During the autumn, Rewe had withdrawn its complaint and, on 2 December, Rewe and Edeka announced a deal. Rewe agreed to buy 62 Kaiser’s stores in and around Berlin – and drop its appeal against Edeka’s takeover of the business.
“We are very pleased that our efforts and patience have paid off, and that we are finally able to close the takeover of Kaiser’s against all opposition,” Edeka CEO Markus Mosa said.
The deal meant Edeka acquired more than 80% of the Kaiser’s stores and it sought to emphasise the acquisition would mean a wider range for consumers to buy.
Edeka, meanwhile, withdrew its complaint against Rewe’s plan to buy a majority stake in northern German retailer Coop after arguing anti-trust officials had not applied the same standards to that deal as they had on the Kaiser’s transaction, a claim the watchdog dismissed.
And so 2017 starts without Germany’s two largest grocers at loggerheads.
December also saw Rewe make another significant announcement. The retailer announced company executive Lionel Souque would become its new CEO when the term of incumbent Alain Caparros ends on 31 December 2018.
With Souque having started at Rewe in 1996, the appointment in some ways reflects a desire on Rewe’s part for continuity. Souque has worked in senior positions at Rewe’s Penny and Billa chains, with his time at the business taking in experience within the company’s international operations.
Could South Africa’s Shoprite join forces with Steinhoff?
South Africa-based multi-format retailer Steinhoff has been in expansionist mode in recent quarters, with deals including the acquisition of UK discount retailer Poundland and US-based Mattress Firm.
On 14 December, Steinhoff’s latest bid to expand its business emerged. It involved Shoprite Holdings, the South-Africa based food retailer that is Africa’s largest grocer.
Shoprite announced the two companies were in talks over a “potential combination of their respective African retail businesses, with the objective of establishing a diversified African retail business of significant scale and international geographical reach that could be regarded as the retail champion of Africa”.
The potential new business already has a name – Retail Africa – and would have operations in 15 African countries, generating revenue and EBITDA of around ZAR200bn (US$14.3bn) and ZAR15bn respectively.
The proposed deal would see Steinhoff take a “strategic interest” in the combined entity, which would remain listed. However, it was stated Steinhoff had agreed a deal in principle to buy out the respective largest shareholders in both businesses, which could ultimately mean it takes control of Retail Africa. Shares in both companies promptly fell, with some investors reportedly arguing the deal appeared complex and bemoaning what they saw as a lack of details on the possible transaction.
“Retail Africa, locally bred, will have the required size and scale to compete with any other international retailer, making it a compelling value proposition for Retail Africa’s value conscious African customer base,” a joint statement from Steinhoff and Shoprite read. And that is the last we have heard at the time of writing.
M&A in Europe
There were three notable pieces of M&A news among Europe’s food retailers in December.
On 5 December, Portugal-based retail group Sonae snapped up a majority stake in Go Well, which runs more than 20 restaurants in the country under the Go Natural banner.
Ten days later, Sweden’s Axfood announced it had tabled an offer for local online grocer mat.se.
And, two days before Christmas, Swedish peer ICA said it had struck a deal to buy the company behind Lithuanian grocery chain IKI.
Retailer forays into foodservice do not always go well – look at Tesco in the UK – but, in a number of markets, there is a trend among retailers to want to tap into the, in broad terms, faster growth of that channel. Sonae may be looking to use Go Well to develop its own in-house prepared food, grocerant business.
Axfood’s move for mat.se is another sign of the development of online grocery. While Sweden does not get mentioned in the same breath as the UK and France when pundits talk up the prospects for the online channel in Europe, retailers in the country have been developing an online business and Axfood’s bid for mat.se is a sign the retailer believes the channel will become more important to bricks-and-mortar grocers.
ICA is looking to beef up its presence in the Baltic region’s largest market. The Swedish retailer already has a presence in Lithuania through its Rimi Baltic arm but Lithuania is that retailer’s smallest market. The deal, as one would expect, will be looked at by the country’s competition officials.
Ahold Delhaize “better together”
Over the last two years, the biggest M&A deal in European grocery retail has seen Benelux peers (and in some markets, rivals) Ahold and Delhaize Group join forces.
The transaction, first announced in the summer of 2015, was completed in July 2016, creating a business with 22 chains in 11 countries.
In December, the new Ahold Delhaize held a capital markets day to outline its plans to an audience of investors and analysts. The retailer, espousing a mantra of “Better Together, set a target of accruing EUR500m (US$524.6m) of synergies over the next three years.
However, on top of that, Ahold Delhaize is looking to save through is targeting better buying, “smarter” operating and less waste. The savings would then be invested in the business, with Ahold Delhaize setting out a four-point “customer proposition” of being “affordable for all”, having a focus on fresh and “healthier” food, marketing the “best” own brands and the “most local and personal service”.
Looking at Ahold Delhaize’s channel strategy, the retailer is targeting a doubling of its e-commerce sales to EUR4.6bn by 2020 and sees “a great opportunity” to grow its small formats across its markets.
The US will remain a battleground for Ahold Delhaize, with the growing competition from more value-focused retailers. However, CEO Dick Boer pointed to the then Ahold’s success in growing its market share in the Netherlands during a period of similar growth from the discounters in that market.