Food Retailers Delhaize, Ahold Confirm Preliminary Talks to Merge

NEW YORK (The Deal) -- Belgian food retailer Delhaize Group (DEG) and Dutch peer Royal Ahold (AHONY) confirmed on Tuesday they are in talks regarding a potential merger.

In separate statements, the companies described the talks as preliminary.

Tuesday's announcements follow a weekend report in Belgian business daily De Tijd about early-stage merger talks between the Brussels-based parent of Food Lion and the Dutch owner of Stop & Shop food stores in the United States.

A combined entity would have 2014 revenue of €54 billion ($60.4 billion) and a net profit of €1.2 billion, with a foothold along the U.S. east coast stretching from Maine to Georgia with few expected overlaps.

Analysts at Jefferies International estimate the deal would create synergies of €400 million to €600 million, which it expects would be most likely be reinvested into Ahold's U.S. retail outlets. The analysts say those stores have historically charged prices at least 10% higher than Delhaize's overlapping Hannaford and Food Lion stores.

Experts are divided as to whether a deal would be structured as a genuine merger or as an acquisition by Ahold. The Dutch company's market capital is nearly twice that of Delhaize. Ahold's last major acquisition, the $3.4 billion swoop on U.S. Foodservice in 2000, brought the Dutch buyer to the brink of bankruptcy three years later following an accounting scandal.

Both companies have sought to reinvent themselves in the last few years through asset sales and management changes, though both are struggling with competition at home and abroad. Ironically, Delhaize has been hurt by Ahold's entry into Belgium, where Ahold has opened 30 stores in the Dutch-speaking north with plans to open another 20 locations.

Shares in both companies are up Tuesday. Delhaize's U.S. shares are up nearly 1% to $23.24 while Ahold's ADRs are up 1.7% to nearly $21.

Jefferies said it sees a 50% chance of Ahold buying Delhaize for €115 -- Delhaize was trading at around €85 in Europe on Tuesday morning -- and upgraded its recommendation on Delhaize to buy and on Ahold to hold.

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