More ins and outs at Ahold

Related tags Ahold Retailing

As Dutch retailer Ahold sifts through more than 50 offers for its
Spanish retail business, the group could find itself faced with the
enforced acquisition of a 20 per cent stake in Nordic partner ICA.
But despite the wholesale changes at the group since last year's
discovery of accounting fraud, Ahold is unlikely to fall too far
down the retail rankings this year.

Reports in the Spanish press suggest that Ahold has shortlisted 10 bids from around 50 offers for its 600-store Spanish supermarket business, with retailers Eroski, El Corte Inglés, Carrefour, Alcampo and Caprabo expected to fight it out with venture capital firms Permira, Apax and CVC Capital when a final decision is made in the autumn.

But the €600 million the company is hoping to recoup from the sale of the Spanish unit could be more than swallowed by the cost of acquiring a 20 per cent stake in ICA, Ahold's joint venture partner in the Nordic markets.

The Dutch group jointly owns ICA with Norwegian investment firm Canica and ICA Förbundent (IFAB), a company owned by ICA shopkeepers in Sweden, and when Canica decided to realise its investment back in May, it was obliged under the terms of the agreement to offer its 20 per cent stake to IFAB.

But IFAB looks increasingly unlikely to buy the stake - claiming, somewhat bizarrely, that Canica has refused to put a price tag on its shares - leaving Ahold with an obligation to buy the shares for an estimated €840 million for the stake.

Ahold currently holds 50 per cent of ICA, which operates around 3,000 stores in Scandinavia and the Baltic states and posted sales of SK72 billion in 2003.

IFAB will decide later today whether or not to go ahead with the acquisition, according to the Financial Times​ newspaper, but the chances of an eleventh-hour rescue for Ahold look unlikely.

Ahold would much rather use the cash raised from the Spanish sale (and the €840 million it would save by not having to buy Canica's stake) to help reduce its debt burden - currently around €7 billion - as part of its Road to Recovery restructuring programme, introduced after the discovery of €1 billion hole in its accounts last year.

The importance of the successful implementation of this programme cannot be underestimated, according to British retail think-tank IGD. Ahold - once the world's number three retailer after Wal-Mart and Carrefour - will remain one of the key players in the global retail league if its turnaround is a success.

IGD predicts that Ahold will generate €49.7 billion sales by the end of 2006, and although this represents a 4.5 per cent sales growth in its retail businesses, compared to the company's stated target of 5 per cent, Ahold will remain a top ten international player.

The Dutch retailer will fall three places by 2006, dropping behind Metro, Tesco and Kroger as well as its two long-time rivals, according to IGD, reducing its consolidated retail operations to just five markets - the Netherlands, US, Poland, Czech Republic and Slovakia. Ahold's stake in ICA is not consolidated.

But this will make it a far more focused business, with stronger corporate controls and a number of strong leading retail chains such as Stop & Shop in the US and Albert Heijn in the Netherlands, and with greater opportunities for savings in back office operations in logistics, sourcing, marketing and personnel, according to IGD.

Louise Spillard, business manager at IGD, said:"It is not safe to say that all of Ahold's difficulties are behind it as it still faces a number of challenges, for example in the ongoing divestment process. However, we believe that by 2006 Ahold will emerge a stronger, more integrated global group with a clear focus on its key strengths, and will remain one of the top six global retailers - no mean achievement."

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