Earlier today, Belgian retailer Delhaize SA revealed a US$2bn bid to raise its 52.7% stake in Delhaize America to 100%, and prompted a dramatic fall in share prices.

The move, approved by the board of directors, is surprising following as it does Delhaize America's recent US$3.3bn acquisition of US retailer Hannaford. Delhaize said that plans to buy-out its majority owned subsidiary, which now rates as the fifth largest supermarket operator in the US, would result in a more streamlined operation, allowing the company to capitalise on "financial strength, human resources and international development."

At present, Delhaize controls around 45% of all shares within Delhaize America, but this represents the ownership of 56% of class B voting shares and 37% of class A nonvoting shares.

The deal will be completed through a share exchange, which the company stressed would be tax-free. In a bid to streamline the company's shares, Delhaize America shareholders will receive 0.35 Delhaize group shares in exchange for each class A and class B share. This, the company said, represented a 32% premium above the average price for the combined share, which has been calculated at US$15.29. When the transaction is finalised, shareholders of both companies will hold one class of share, with identical voting rights, which will be listed as American Depositary Receipts on the New York Stock Exchange, and as ordinary shares on the Belgian bourse.

Many of Europe's largest retailers are seeking growth across the pond - Ahold of the Netherlands is perhaps the best example, and Delhaize appears to have followed the larger group's lead. Last year, Delhaize America generated 80% of the Delhaize Group's profits, and 70% of its sales. The company believes the transactions will generate US$20m in pre-tax synergies, and an increase in net earnings per share over the next two years.

The transaction is expected to be completed early in 2001, but relying on approval from Delhaize America shareholders, and a committee of its independent directors, is raising a few concerns for Delhaize Group shareholders who witnessed the action on the Belgian bourse earlier today. The share value plummeted 5.62% to €57.95.

Sandra Vandersmissen, an analyst from Fortis Bank, explained that the offer price was "not very much, that's why the share price is down.... They might have to increase the offer a bit." Meanwhile KBC Securities analyst, Caroline Lauwers, warned that while the buyout was a good move in the medium term, "if Delhaize has to bid more, we're in for a longer process."