Europe is about to have a supersized supermarket chain with Royal Ahold NV and the Delhaize Group agreeing to merge operations to create a grocery giant worth $29 billion.
The merged entity-Ahold Delhaize-will have 6,500 combined stores in the U.S and Europe that will serve 50 million customers weekly. The European firms - Ahold is based in the Netherlands, while Delhaize has its headquarters in Belgium - generate more than half of their sales in the U.S. The value of the deal is based on the closing price of the shares of the two firms as of Wednesday morning.
"The company will have enhanced scale across regions, market-leading retail offerings to serve customers' changing needs, and a strong financial profile from which to fund innovation and investments in future growth," the companies said in a joint statement posted on the Delhaize website.
The merger is expected to save the company 500 million euros over three years and head off competition coming from discount stores and online groceries, reported the Wall Street Journal. It added that these developments have also roughed up other large supermarkets in the U.S. and Europe such as Costco Wholesale Corp and Tesco PLC.
Morgan Stanley estimates Ahold Delhaize will be the fifth largest grocery chain in the U.S. with a 4.2% market share. Mats Jansson, Chairman of Delhaize Group, will become Chairman, while Dick Boer, Chief Executive Officer of Royal Ahold, will become CEO.
Shareholders of Netherlands-based Ahold will get 61% of the new company, while the rest will go to shareholders of Belgium-based Delhaize. The terms of the agreement call for close to five common Ahold shares to be given for every one Delhaize shares owned by stockholders. The deal is projected to be done in 2016 after securing the nod of regulators and shareholders.
Despite this, the arrangement between the companies is presenting the deal as a combination of equals.
"This is a true merger of equals, combining two highly complementary businesses to create a world-leading food retailer. The transaction delivers a compelling value proposition for our shareholders, a superior offering for our customers and attractive opportunities for our associates."
