Ahold and Delhaize merger proposal could hit some setbacks; unions want more clarity regarding merger talk
There could be some obstacles in merger discussions between listed Dutch and Belgian food retailers Ahold and Delhaize, Belgian daily L’Echo reported. The report cited four setbacks that could prevent the operation from being successful.
First are the unions, which are threatening to go on strike if Delhaize does not reveal more details about the merger discussions. The report noted that the Belgian retailer announced 1,800 job cuts in a restructuring last year.
Second is the low success rate of mergers in the food retail sector, as pointed out by analysts at Bernstein.
Third is the implementation of the merger and practical issues, such as the location of the future headquarters. Pierre-Alexandre Billiet, CEO of retail trade magazine Gondola, was cited as saying the issue is very complex. If the combined entity wants to retain its European character, then Brussels would be the logical choice, he stated. The report however said that the tax rate amounts to 25% in the Netherlands compared to 33.99% in Belgium, although Delhaize's effective rate was 17.5% in 2014. The group could also decide to move its headquarters to the US, given the importance of their business in that country. Regarding management, the report said many people see Ahold current boss Dirk Boer heading the merged entity, while Frans Muller could leave and Mats Jansson, chairman of the board of Delhaize, could become the new chairman of the enlarged group.
Fourth and finally, agreeing on a price is a tricky matter. While the two parties have a similar valuation, the report cited analysts at Pertercam as calculating that Ahold generates more free cash flow, while Delhaize's EBITDA ratio is better. An analyst at Degroof added that mergers in the food retail sector are not as expensive as other sectors because the profitability of the players is low. Gino Van Ossel, a professor and expert in the retail food sector, claimed that the transaction could result in a merger of equals or in Ahold becoming the acquirer, given that the company has the financial means to do it.
Speaking about the advantages of the merger, the report cited the savings, the timing, the geography, and the shareholders as elements that plead in favour of a tie-up: The synergies could amount to anywhere from EUR 500m to over EUR 1bn, estimated by analysts at Petercam, ABN Amro and Rabobank;
In terms of timing, both groups are financially healthy, with Delhaize having restructured its operations in Europe and in the US, and Ahold having a coffer full of cash, according to retail professor Claude Boffa.
The two groups are very similar in terms of geographic presence, especially on the US East Coast and in the Benelux, while having very few duplicate operations. Billiet said that attaining a larger size is a critical strategy in the food retail sector, where profit margins are low.
Finally, the report noted that no shareholders are expected to block or hinder the discussions between the parties. Ahold shareholders are institutional investors, while the control of investor families in Delhaize is believed to amount to fewer than 20% of the share capital, analyst Hans D’Haese claimed. Delhaize will also welcome two new independent board members in the coming days in replacement of two families’ representatives, the report noted.
The socialist union BBTK wants Delhaize to be more open about the progress the group is making regarding a potential merger with Ahold, Belgian daily De Standaard reported, citing a letter from BBTK.
In the letter the union threatened to go on strike if Delhaize, which employs 1,800 people, remains unclear about its intentions to merge with Ahold. The union fears job cuts and lower wages.
Link to original article (L'Echo) {http://www.lecho.be/detail.art?a=9632621&n=3005&ckc=1}
Link to original article (De Standaard) {http://www.standaard.be/cnt/dmf20150511_01675003}
L'Echo, De Standaard