Ahold for Delhaize
Belgian newspapers De Tijd and L’Echo reported May 9 that the companies are in early talks to merge.
Firstly, this is unlikely to be a merger but more a potential takeover of Delhaize Mcap 8.4bn Euro by its Dutch rival Ahold Mcap 16.4bn Euro.
However, we are cautious on this deal (optimistic yes but cautious)
The negatives are that Delhaize multiples are already high. For example, Delhaize EV/Sales multiple over the prior 3 years is 0.29x Ev/Sales average. Delhaize is at current share price of Eur84.1 trading at 0.44x Ev/Sales or c50pct higher than average. Bear in mind this merger has been on the making for years and there does not seem to be counter bidders, so at current share price and sales multiple, Delhaize would need to have evident synergies with Ahold. Antitrust in benelux may also be a concern (who are the ready buyers if a divestment is required?).
The positive is that CEOs are reactiing to the European MnA environment and pursuing long rumoured mergers, Delhaize Ev/Sales multiples have been improving vs Ahold. For example in 2012 the Ev/Sales multiple for Delhaize was 48pct discount to Ahold’s (0.25x vs 0.37x) the consensus forward 2015 Ev/Sales multiple puts the discount at 21pct. The market is re-rating Delhaize’s sales and both companies have a foothold in the US which could drive synergies. This may mean the timing is right for Ahold to take Delhaize over. Also Delhaize and Ahold share a common large holder (Silchester), similar FcF generation and leverage.
Short covering in Delhaize and the unwinding of long/short positions may push the Delhaize share price in the short term but we await for further details