Deal Reporter
Merger talks between Royal Ahold [AMS:AH] and Delhaize [EBR:DELB] were successful because of trust built between the parties, and because discussions began with a focus on a merger of equals, Ahold chairman Jan Hommen said.
At a press conference announcing the merger, Delhaize chairman, Mats Jansson, added that there were ups and downs during negotiations, as management answered a question on how the process was different from previous deal talks between the companies.
As reported, Delhaize and Ahold had previously looked at combining in 2006/07 and 2012. Jansen refused to answer who initiated discussions this time. Talks were aided by the fact that 90% of each of the two companies’ strategic outlooks matched, Ahold CEO Dick Boer said.
Ahold CEO Boer and his Delhaize counterpart Frans Muller noted they had known each other for 15 years. Talks between the two uncovered they had the same strategic rationale for their companies, Muller said. They also decided it would be “good fun” to work together, he said.
The tie-up will see the creation of Ahold Delhaize, with the Belgian company’s shareholders owning 39% of the new entity and Ahold shareholders owning 61%. Ahold investors will receive a pre-closing capital return of EUR 1bn and its management will carry out a stock-split prior to the merger.
A changing and evolving grocery industry meant both companies were looking for ways to better compete against discounters and high-end grocers, Boer said. Both were repositioning their US operations in the face of changing consumer preferences, the executives said.
Both sets of management sought to stress the deal as a merger of equals, with representation on the new supervisory and management boards split equally between the two companies. Delhaize’s Janssen will become chairman of Ahold Delhaize, with Ahold’s Boer taking the CEO role.
The boards were adamant that the three top managers at each company – CEO, CFO and US COO – stayed with the new entity, Jansson said. Delhaize’s Muller will become deputy CEO and chief integration officer. Ahold’s Jeff Carr will be CFO, with his counterpart Pierre Bouchut becoming COO Europe. The two US heads will keep their respective positions for each company’s operations there.
The deal is expected to close in mid-2016. This is mainly due to a possibility that the deal’s merger review in the US could take some time, Boer said. The parties were less concerned with the European review, as Ahold has only 31 stores in the north of Belgium, where the companies overlap.
Meanwhile, the deal structure, and expected EUR 500m annual synergies, should see the combined entity have a net debt/EBITDAR ratio of about 1.7x, according to a deal presentation. The executives would not be drawn on whether the new entity will look to stick to Ahold’s leverage ceiling of 2x. The intent is to have the “same outlook” in terms of maintaining a strong balance sheet, they said.
Delhaize was trading down 4.87% at EUR 83.74 early Wednesday afternoon, giving it a market capitalisation of EUR 8.67bn. Ahold was trading down 0.79% at EUR 18.81, giving it a market cap of EUR 16.82bn.