The global parent company of Stop & Shop has agreed to buy the owner of Hannaford for $10.4 billion, a move that will cut costs for two supermarket giants that have experience slow growth in recent years.
Royal Ahold NV, the Dutch company that owns Stop & Shop, said buying the Delhaize Group would generate cost savings of $559 million per year by 2019. The combined chain will be the fifth-largest supermarket company in the US. Both companies have grocery stores in Europe and the eastern seaboard, and Massachusetts is a key area of overlap between them.
In the US, Delhaize Group operates the Hannafords and Food Lion chains. Ahold currently operates 131 Stop & Shop supermarkets in Massachusetts, and 214 across New England. Delhaize has 25 Hannafords in the state, and 183 in New England. Stop & Shop is the largest grocery chain in New England; Hannaford is the third largest.
The Stop & Shop and Hannaford chains will continue to operate as separate brands, said Dick Boer, the current chief executive of Ahold who will lead the merged organization.
“They are strong local brands,” Boer said Wednesday. “There’s no way that you’re going to change that.”
Boer said it’s too early in the process to determine whether the size of the workforce or the brands’ headquarters will change. Stop & Shop’s US business is based in Quincy and Hannaford is headquarted in Scarborough, Maine.
The merger comes during a time of slow growth for the traditional supermarket industry. Supercenters like Wal-Mart and drug stores like CVS have eaten away at grocery sales, and there are few opportunities for supermarket retailers to build successful new locations in places like New England that are densely populated with established stores, according to industry analyst Kevin Griffin.
“Old-fasioned grocery stores, they’re struggling,” said Griffin, the publisher of a northeastern food marketing publication owned by the Shelby Report. “They’re flat, and there’s not a lot of organic growth.”
In other parts of the country, Delhaize’s Food Lion faces challenges from Wal-Mart’s addition of smaller-format grocery stores, while Harris Teeter is cutting prices under the ownership of Kroger Co. The combined company, called Ahold Delhaize, will have 6,500 stores worldwide.
Some elements of the acquisition are unclear. The companies said they expect the deal to close in mid-2016, but didn’t say whether any stores would be renamed or closed. There are also some differences between the chains owned by Ahold and Delhaize: Stop & Shop stores tend to be larger, and prices at the store are higher than at Hannaford, according to a survey by the non-profit Consumers’ Checkbook.
Still, analysts have said they expect the deal to be approved by government competition authorities. Only about 5 percent of the companies’ US grocery stores could be described as overlapping, according to Barclays analysts. Supermarket experts told the Globe the companies may have to sell off some of their locations, or they could try to make the case to regulators that the deal wouldn’t hurt consumers.
Andy Couch, a Boston-based managing director at DJM Real Estate, said fewer stores may end up closing than during past supermarket mergers because the Federal Trade Commission has expanded its view of competition to include supercenters. The regulator’s competition review could expand to consider the market impact of other food sellers, he said.
“Is Trader Joe’s a competitor? Is a small, specialty grocer a competitor? Is a convenience store a competitor?” said Couch, whose company is a division of the Gordon Brothers Group. “Usually, they have not defined those stores as competitors.”
In other markets, Ahold might also help its Belgian rival come up to speed on Internet shopping. The company owns Bol.com, the largest online retailer in the Netherlands. “Delhaize, having somewhat lagged the online trend, could benefit from Ahold’s vast experience in the matter,” ING analyst Matthias Maenhaut said.
Under the terms of the deal, Delhaize investors will get 4.75 Ahold shares for each share they own. That’s worth about $100.69 a share, based on Tuesday’s closing price. Jeff Carr, Ahold’s chief financial officer, told analysts that achieving the projected synergies of $559 million per year will cost the company $503 million in costs and transaction fees.
The deal is expected to add to the new company’s earnings in the first year, he said. A breakup fee of $168 million will apply if either company withdraws from the transaction.
|Delhaize Group||Royal Ahold NV|
|Headquarters||Brussels, Belgium||Zaandam, Netherlands|
|CEO||Frans Muller||Dick Boer|
|Supermarkets in New England||183||214|
|Supermarkets in Massachusetts||25||131|
|Market value||$10.2 billion||$17.6 billion|
|2014 revenue||$23.9 billion||$36.7 billion|
|Stock price (US)||$24.55||$21.16|
|Ticker symbol (US)||DEG||AHONY|
|Major chains||Food Lion,Hannaford, Delhaize, AD Delhaize, Proxy Delhaize, Shop 'n Go, Alfa Beta, Mega Image, Maxi, SuperIndo||Stop Shop, Giant, Gall Gall, Albert, Albert Heijn, bol.com, etos, pingo doce, Peapod|
|2014 revenue||$23.9 billion||$36.7 billion|