May 11, 2015 / 10:32 AM / 4 years ago

Ahold, Delhaize leap on tie-up talks; analysts split

BRUSSELS (Reuters) - Dutch grocer Ahold AHLN.AS and Belgian rival Delhaize DELB.BR are exploring a potential tie-up, a source familiar with the matter said, sending their shares soaring, though analysts were split over the merits of any deal.

Empty parking lots at a Delhaize supermarket are pictured during a strike in Lessines June 13, 2014. REUTERS/Laurent Dubrule

“They’re sniffing around, exploring the options, but it’s very early days,” the source said on Monday, following weekend press reports about a link-up that could create a 25-billion-euro ($28 billion) business with a focus on the United States.

Both companies declined to comment.

Delhaize’s shares leapt as much as 19 percent, while those of Ahold jumped by up to 15 percent.

A close geographic fit is the main argument for a tie-up, analysts said. Both companies have Benelux roots, make the majority of their sales on the U.S. east coast with Delhaize’s Food Lion and Ahold’s Stop & Shop and Giant chains, and have operations in central and eastern Europe.

A deal could potentially increase bargaining power with suppliers, translating into lower prices for shoppers and larger market shares. ABN Amro estimates savings at 600 million to 1 billion euros based on combined earnings before interest and tax of 2 billion euros.

Not everyone agrees, however, pointing to a weak track record of mergers in the supermarket sector.

“We struggle to think of any proven successful big M&A deal in food retail,” Bernstein analysts said.

Since buying Safeway in 2003, shares in British grocer Morrisons (MRW.L) have barely improved, while Carrefour’s (CARR.PA) are half of what they were before its 15.9 billion euro purchase of French rival Promodes in 1999, according to Thomson Reuters data.

Delhaize’s most recent large scale acquisition, the 932 million euro purchase of Serbian retailer Delta Maxi in 2011, has also been branded a failure by many analysts.

After a series of writedowns, caused by the weak Serbian economy, and sales of units in minor markets such as Albania and Macedonia, only 50 million euros of goodwill related to the acquisition are left on Delhaize’s balance sheet.

Press reports of a possible merger between Ahold and Delhaize surfaced in 2006, but the two were very different then, with Ahold recovering from an accounting scandal at its U.S. food service operations which had battered its shares.

Since 2006, Ahold’s shares have outperformed Delhaize’s, tripling in value compared with a 50 percent gain at the Belgian firm. Ahold’s market capitalization is now twice that of Delhaize and so a tie-up would likely not be a merger of equals, as envisaged before, but rather Ahold buying Delhaize.

Additional reporting by Thomas Escritt in Amsterdam; Editing by Philip Blenkinsop and Mark Potter

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