Ahold and Delhaize discuss merger, according to reports

Dutch retailer Ahold and Belgian rival Delhaize may have held discussions on a possible merger.

That is according to various reports including France’s Les Echos and Belgium's De Tijd.

Analysts believe the companies are motivated by the need to offset margin pressures in the US, the market from which they both derive approximately 60% of their revenues.

The combined company would have a market capitalisation of $28bn with annual sales of approximately $60bn, comparing favourably with the likes of Tesco, which enjoys a market capitalisation of $29bn despite annual sales of $96bn.

A tie-up between the two firms was last mooted in 2007.

Back then the merits of a deal were arguable. However, now Delhaize is in better shape, Ahold is looking for a little extra fuel in the tank and the retailers' valuations are relatively balanced, so a deal looks more credible, according to Exane BNP analyst John Kershaw.

"Investors need always be wary of "big M&A" in grocery retail, but we think a deal could be appealing for both parties, and the equities, particularly as food inflation unwinds in the US," Kershaw added.

Analysts at a large US broker were somewhat more circumspect, telling clients: "we see no reason to celebrate and worry about the bankers winning the upper hand over the common-sense of a well-grounded food retailer. This seems at first sight a bad deal fro Ahold to us, fraught with lots of of execution risk and benefiting from very limited cost saving advantages."

Shares in the former were up by 7.37% to €18.52 as of 08:46 while stock in Delhaize was advancing by 12.25% to €81.26.

An index of retailers was the second best performer on the DJ Stoxx 600, gaining 1.31%.