Delhaize confirms merger talks with Ahold to create European grocery giant

Merger talks between Dutch grocer Ahold and Belgian rival Delhaize have been confirmed, in a potential deal that would could create a European supermarket powerhouse worth around €23bn.

The companies confirmed the talks in a statement, but did not disclose any financial details of the potential deal and cautioned the talks may not result in any deal.

Rumours of the talks had intensified in recent days, having rumbled on since the pair held extensive talks in 2007 to try and overcome cultural differences between Flemish-speaking Ahold and French-speaking Delhaize.

Analysts believe the companies are motivated by the need to offset margin pressures in the US, a market from which the pair both derive almost two thirds of their revenues.

This time may be the right time given consolidation in US distribution, said broker Oddo, noting that previous problems such as highly invested families at Delhaize, cultural differences, problem with the unions at Ahold in the US holding back the deal despite it looking earnings accretive, with cautious estimates of €500m savings but with high execution risk.

"Compared with 2007, the competitive environment has changed: the concentration process of the US food retail segment, where the scale effect has become a strength (Kroger is currently four times bigger than Ahold and six times larger than Delhaize), ramp-up of hard discounters in the US, Belgium and the Netherlands. The shareholding structure, mainly comprised of institutional investors for both groups, could, moreover, facilitate negotiations under way at present."

On the basis of multiples, Oddo calculates Ahold's weight would be 63% and Delhaize's 37%.

"Consequently, to align the multiples, Delhaize would warrant a premium of 5%-7% per share (partly payable in cash by Ahold)."