The €25bn (£17.8bn) mega-merger of European supermarket giants Ahold and Delhaize will shake up the grocery sector in Europe and the US, where both have a big chunk of the market.
But the prospective merger of equals, announced on Wednesday, also had an impact closer to home after a broker speculated the consolidation bug could spread to the UK. Societe Generale suggested Sainsbury’s and Morrisons could form a purchasing partnership.
“We think the competition authorities could be ready to accept a merger given the increased role of hard discounters,” SocGen said. “A merger could be a defensive move if market conditions deteriorated further, and a potential Morrisons/Sainsbury’s deal seems the most likely.”
Morrisons shares surged by 2.6% to 184.5p on Wednesday and Sainsbury’s was up 2.3% to 275.5p - also helped by SocGen’s re-rating of the stock, hiking up its target from 260p to 315p.
On the Continent, neither Ahold nor Delhaize shareholders seemed particularly delighted with the deal, though the former seemed rather less perturbed than the latter. At completion, Ahold shareholders will own 61% of the combined company’s equity and Delhaize shareholders will own 39% after they receive 4.75 Ahold ordinary shares for each Delhaize ordinary share they own.
By Thursday lunchtime in Brussels, Delhaize shares were down almost 10% since the announcement at €79.50, while in Amsterdam Ahold shares initially spiked up 3% before settling down to end Wednesday 3.7% down at €18.26. Bernstein analyst Bruno Monteyne agreed Ahold could be on the better end of the deal. “The deal looks good for Ahold shareholders, they are getting €1bn in cash and paying only a 27% premium for Delhaize,” he said.
Meanwhile, Tesco crept up 1.2% to 218.4p on Thursday morning after news emerged that as many as eight bidders, including Affinity Equity Partners, Carlyle Group and CVC Capital Partners, have made initial offers for its $7bn (£4.5bn)-valued South Korean business Homeplus.
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