Coverage: Grocery deal reaches the U.S.

Ahold and Delhaize Group are merging. While the combination might seem mundane, it’s one that could touch the everyday lives of people around the globe.

The Wall Street Journal story by Ian Walker and Annie Gasparro had these details about the combined company:

The planned merger of Ahold NV and Delhaize Group would create one of the biggest U.S. supermarket chains, giving the grocers greater buying clout as they grapple with slow growth and intensifying competition from discounters and upscale chains.

On Wednesday the two announced their all-stock deal to create a company with a market value of about $29 billion, combining Ahold, the Dutch owner of the Stop & Shop and Giant chains in the U.S., with Delhaize, the Belgian operator of American chains Food Lion and Hannaford. Ahold Delhaize, as the new company will be called, will be based in Europe but generate about 60% of its sales in the U.S.

Ahold Delhaize would have a 4.6% share of the U.S. grocery market, making it the fourth-largest player by revenue, according to research firm Euromonitor International, and would be among Europe’s largest food retailers.

With more than 6,500 stores on the two continents, Ahold Delhaize will employ 375,000 and serve up to 50 million customers a week.

The Financial Times story by the posse of Duncan Robinson, Naomi Rovnick, Arash Massoudi and Andrea Felsted pointed out that many chains are having tough time:

The tie-up comes as supermarket groups in the US and Europe are facing multiple challenges, from the rise of German discounting chains to changing consumer habits. By combining, the companies can use their increased scale to negotiate better terms with suppliers.

While billed as a “merger of equals”, the deal is structured as a takeover with shareholders in Ahold, which has a market value of €16.8bn, set to own 61 per cent of the combined company’s shares.

Delhaize shareholders will own the remainder and will receive 4.75 Ahold ordinary shares for each of their shares.

Shares in Delhaize, which has a market capitalisation of €8.7bn, fell 4.9 per cent to €83.70 in early afternoon Brussels trading. The company’s stock had been halted after large gains on Tuesday.

The companies are aiming to cut €500m in costs within three years, but chief executives for both declined to say how many job cuts they planned.

Bernstein, which had initially described the deal as “a very bad idea” in a note to clients, softened its criticism of the tie-up, saying that the move was good news for Ahold shareholders in particular.

Toby Sterling and Robert-Jan Bartunek wrote for Reuters that the deal seems to be better for Ahold:

The combination will bring four well-known supermarket chains on the U.S. east coast under the same umbrella: Ahold’s Stop & Shop and Giant stores and Delhaize’s Food Lion and Hannaford markets.

Together, the companies say, they will lower operating and purchasing costs to compete with Wal Mart and expand the reach of Ahold’s online grocery store Peapod, the largest such service in the United States, to compete with Amazon.

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That division is slightly more skewed in Ahold’s favour than analysts had expected, especially as Ahold shareholders will receive a capital return of 1 billion euros at the time the merger closes in 2016.

Regionally, many are already trying to determine what job cuts they’ll see, according to Jennifer Thomas of the Charlotte Business Journal:

Any cuts likely will take place 18 to 24 months down the road as the company defines its market position, says Keith Anderson, vice president of strategy and insights for Profitero. The company provides e-commerce research and competitive monitoring for the retail sector.

“In this kind of transaction, you expect some consolidation,” he says.

It’s too early to comment on specifics before a full integration plan has been put together, says Christy Phillips-Brown, director of external communications and community relations for Delhaize America. “Both companies bring strong, trusted local brands to Ahold Delhaize,” she says. “Ahold Delhaize’s retail stores will continue to operate their existing brands.”

Ahold USA did not respond to a request for comment Wednesday afternoon.

The combined company, Ahold Delhaize, will have a network of 6,500 stores that serve more than 50 million customers each week in the U.S. and Europe. Food Lion operates more than 1,100 grocery stores in 10 Southeastern and mid-Atlantic states.

The merger is likely to have far-reaching affects for people on both continents. It could allow the companies to compete with discount retailers and others who are making a move in the grocery space. It could just come at the price of local jobs and service.