Delhaize, Ahold in giant supermarket merger talks

Belgian supermarket giant Delhaize said Tuesday it has begun talks with Dutch rival Ahold on a merger that would create one of the biggest food retail groups in the world.

The Delhaize Group “has entered into preliminary discussions with Royal Ahold N.V. to explore the opportunity of combining the two companies,” a statement from the Belgian group said.

“These discussions may or may not result in a future transaction. The company will communicate material updates, if any, in accordance with regulatory requirements,” it added.

If achieved, a merger would create the fifth-largest food retailer in the United States, with sales of over 54 billion euros ($60 billion) and more than four percent of the US grocery market, according to analysts at Natixis.

In Europe, the combined business would become the fourth-biggest food retailer, Natixis said.

Following the announcement, Ahold shares rose 2.9 percent, giving it a market value of 16.7 billion euros, while Delhaize jumped 1.9 percent and is now valued at 8.7 billion euros.

Weekend reports of the talks had sent shares in Delhaize and Ahold skyrocketing on Monday.

This is the second attempt by the two retail giants to tie-up, after a previous attempt in 2006-2007 failed.

That effort collapsed because the families controlling Delhaize insisted on a merger of equals despite the Belgian company being at the time only half the size of Ahold when measured by sales.

Today Delhaize and Ahold, which owns the US chain Stop & Shop and Albert Heijn in Europe, are closer in size and the families at the Belgian group are outweighed by institutional investors over strategy.

Both companies book a majority of their sales in the United States, with Delhaize a major brand in the US south under its Food Lion banner.

Last month, Delhaize said net earnings in the first quarter tumbled 65 percent to 173 million euros, hit by its struggling business in Belgium, where the chain has shuttered low performing stores triggering labour strikes.

Ahold meanwhile in February reported fourth-quarter net profit of 219 million euros, beating analysts’ expectations.

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