Amsterdam, Sept 25 - Dutch food retailer Ahold and Belgian peer Delhaize have cleared some obstacles to a possible merger, including allowing Delhaize to pick the chief executive, a newspaper reported on Monday, pushing shares in both companies higher.
Ahold, the world's fourth-biggest food retail and foodservice group by sales, and more than twice the size of Delhaize, would agree to a chief executive picked by the Belgian company, Dutch daily Het Financieele Dagblad reported.
Both Ahold, which is reportedly considering a merger to defend itself against shareholder activism, and Delhaize declined to comment on the report.
The newspaper also said Ahold was considering a one-time dividend for shareholders, to be financed from the sale or an initial public offering of U.S. Foodservice and the sale of its 60 percent stake in Nordic retailer ICA AB.
The asset sales including Ahold's stake in Portuguese retailer Jeronimo Martins could bring in 6.5 billion euros ($8.30 billion), allowing the company to pay a super dividend of 4 euros per share, said Rabo Securities analyst Patrick Roquas.
"(This) would reduce the Ahold/Delhaize exchange ratio towards 60/40 based on combined sales, EBIT (earnings before interest and tax) and net profit," he wrote in a note.
Ahold shares ended up 1.46 percent at 8.35 euros, after earlier hitting a 42-month high at 8.45 euros. Delhaize closed 0.79 percent higher at 64.05 euros. The DJ Stoxx retail index was up 0.3 percent.
Both companies generate most of their sales in the United States and are not active in each other's smaller home markets in Europe, making them a reasonably complementary fit.
SOMETHING GOING ON
"More and more investors believe something is going on. Trading volumes in Ahold shares in recent weeks have been higher than usual. If it's not Delhaize, it could be some other company. There could be more price gains ahead," Delta Lloyd trader Lex Bouwmeester said.
Ahold is worth at least 8.87 euros per share and Delhaize 70 euros per share, Citigroup said in a note on Monday.
"The best way to create value would be to split a merged group into three units ... and divest the loose ends; this would unlock much of the discount that both stocks, especially Ahold, suffer due to their conglomerate structures," Citigroup said.
Yet, Citigroup analysts added they were "fairly sceptical" about the prospect of an Ahold-Delhaize deal in the near future.
There are plenty of pitfalls for any deal, with Ahold's ongoing restructuring and Delhaize's smaller market capitalisation and higher gearing cited by analysts as barriers to a merger.
The Dutch newspaper, citing sources close to the situation, added Delhaize would provide a chief executive for the U.S. unit, while Ahold would pick the chief financial officer and the head of the European division.
Ahold would accept a Brussels location for shared headquarters and, in the negotiations last week, the parties outlined plans for a combined company that would create a holding company with a European and a U.S. subholding, the report said.
Industry and financial sources last week said tentative contact is likely to have been made between Ahold and Delhaize, with the move triggered by hedge funds' efforts to whip up shareholder support to break up the company and sell off its flagging U.S operations.