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European Retail Briefing - May 2015
Analyst Comment
 
Ahold and Delhaize
There were reports in early May that Ahold and Delhaize had been discussing a possible merger. They even put out press releases to acknowledge the fact.

But would a merger make any sense? We have our doubts.

How do they compare?
Ahold group is about 50% bigger than Delhaize. Ahold is the market leader in the Netherlands, well in front of its rivals. Delhaize ranks second in Belgium, having been overtaken by Colruyt back in 2007. But for both groups, their biggest interests are in the USA – generating about 60% of sales for both of them.

Both have had a chequered history, though Delhaize did not have to experience the melt down that Ahold suffered in the early 2000s. But that is now ancient history. Both have radically slimmed down their businesses. Their activities outside their home market and the USA are small.

FIGURE 1: Delhaize and Ahold, sales and outlets, 2014
  
Source: Company report and accounts/Mintel

And the fit?
In Europe the businesses are complementary. Both Albert Heijn (Ahold’s main trading fascia) and Delhaize are pitched at much the same level in the market – upper middle mass market. The other European businesses have been slimmed down to a profitable core and are complementary in the sense that they don’t overlap.

But that is not the case in the US. There, both are based down the Atlantic Seaboard and they are competitors. Nor could they necessarily be merged effectively because Ahold’s businesses (Stop & Shop, BiLo etc) are standard supermarkets. Food Lion is an EDLP operator. It is doubtful that they are big enough combined to cause too much trouble with competition authorities, but they are hardly a good fit.

Where are the benefits?
So it is hard to see what the two groups could gain from coming together. Any corporate finance team working on the merger will talk about buying benefits and shared overheads and no doubt could come up with a figure for potential cost savings. 

But the fact remains that this is a collection of businesses which would have very little to gain from being in one group and it is even possible that the competitive stance of the US businesses could be compromised by being part of the same group.

And the risks?
We’ve mentioned the problems of competition in the US. But there is also the underlying problem of corporate culture. One business would come out on top in this merger and it would be Ahold – 50% bigger in sales and 3 times bigger in operating profits. In fact Delhaize lost money in its home market last year and on most measures it is the weaker side of the deal.

Who benefits?
There’s always a risk with a proposed deal like this that the corporate finance teams will gain much more from it that the businesses would. That looks likely to be the case here. Delhaize may be struggling, but it doesn’t need rescuing and while the fit looks good on paper, we are not entirely convinced.

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