Royal Ahold NV and Delhaize Group surged in early European trading after weekend reports that the Dutch and Belgian retailers are in the early stages of talks to merge.
Delhaize rose as much as 15 percent to 83.50 euros, valuing the company at 8.6 billion euros ($9.6 billion). Ahold gained as much as 10 percent for a valuation of 17 billion euros.
Talks between the companies are at a preliminary stage, Belgian newspapers De Tijd and L’Echo reported May 9, citing several sources. The retailers haven’t reached the stage of discussing price or structure, according to the reports. Ahold and Delhaize both declined to comment.
A merger would create savings of 400 million euros to 600 million euros, according to analysts at Jefferies, bringing together grocery businesses in the Benelux and the U.S. Both companies get about 60 percent of sales from the U.S., where competition has become increasingly fierce for Delhaize’s Food Lion chain and Ahold businesses including Stop & Shop.
“We have believed for a long time that both Delhaize and Ahold would struggle to defend margins in the face of increasing U.S. competitive attrition,” Jefferies analyst James Grzinic said in a note. “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.”
Speculation about a combination of Ahold and Delhaize isn’t new. The companies were said to explore a combination of their operations back in 2007. Anders Moberg, the chief executive officer of Ahold at the time, said the company’s main objective was to create as much shareholder value as possible, while staying independent.
Bloomberg News, edited by ESM
