Embattled Ahold forced to sell South American business

Related tags Ahold South america

Ahold has stepped up the pace of its disposal programme. After the
decision to withdraw from Chile in February, the Dutch retailer has
this week said it plans to quit Brazil, Argentina, Peru and
Paraguay. And Asia and Eastern Europe could follow suit, it seems.

How the mighty are fallen. When Dutch food retailer Ahold announced last autumn that it had dropped into the red for the first time in many years, little did anyone know that that would be the start of a chain reaction leading to resignations, accounting scandals and, now, disposals.

Ahold's losses back in September were caused primarily by its South American business, and it is not surprising, therefore, that the operations in Brazil, Argentina, Peru and Paraguay are the latest to be sold under Ahold's new programme of restructuring. Ahold has already announced plans to sell its Chilean unit, Santa Isabel.

The Dutch group announced this week that it was selling the business in order to concentrate on its mature and most stable markets, and to generate funds to pay down debt. The company is also facing an uncertain financial future following revelations of accounting malpractice at its US Foodservice arm.

No timing has been set for any specific divestment, as Ahold is determined to get the maximum value for the businesses it is selling - no doubt in order to dispel the image of rival retailers as vultures converging on a dying creature. Or, as Ahold put it, it wants to withdraw from South America in a measured way, "with respect to its customers, associates and suppliers"​.

Commenting on the decision to quit South America, Theo de Raad, Ahold's board member responsible for Latin America and Asia, said: "We will continue to fully support our operations during this divestment process by ensuring that all our obligations to suppliers continue to be met. We will also seek to ensure that any new owners will continue to meet the obligations to our current associates as well as the expectations of our customers.

"Although we intend to proceed expeditiously with our divestment plan, we are determined to maximise the value we receive for these operations and obtain the best possible results for all our stakeholders."

In more detail, in Brazil Ahold plans to sell its three wholly-owned operations Bompreco, G. Barbosa and Hipercard, which last year posted combined sales of around €1.3 billion. The company operates 19 Bompreço and 32 G. Barbosa supermarkets and hypermarkets, while more than two million people hold the Bompreço Hipercard, the leading customer credit card in the northeast of Brazil, according to the company.

In Argentina, Ahold intends to divest its subsidiary Disco, once an investigation into alleged accounting irregularities has been completed there. The Disco business (236 stores) generated net sales of around €762 million in 2002. The chain has suffered in recent years as a result of the steady decline in consumer purchasing power.

In Peru, despite the double-digit growth of its business, Ahold views the scale of the operations as small, hence the decision to sell the unit. Peruvian sales in 2002 reached €243 million, generated through 32 supermarkets and hypermarkets. In Paraguay, Ahold plans to sell its 10 stores that generated 2002 net sales of €36 million.

Any number of potential bidders could emerge for the business, although many will be wary of entering markets with a reputation for volatile currencies. Carrefour, the biggest European player, already has numerous operations in South America, and may see this as an opportunity to extend its presence there in the hope that currencies begin to stabilise.

Tesco, the UK number one, has already been linked to some of Ahold's businesses, and although it is more likely to be interested in the Eastern European operations - should they eventually be put up for sale - it could see this as an opportunity to gain a foothold in South America.

Analysts are said to be keen to see Ahold sell its Asian business too, which could also interest Carrefour and Tesco, among others, but the Central American operations in Guatemala, Costa Rica, Honduras, El Salvador and Nicaragua are not expected to be put up for sale, for the simple reason that they are profitable.

Not surprisingly, Ahold​ has remained tight-lipped about the sale of its other units, but there were rumours earlier this week that the company was already preparing to leave Malaysia. The Business Times Asia​ newspaper said that Ahold was in talks with Hong Kong retailer Dairy Farm International over the sale of its Tops supermarket chain in Malaysia.

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