Ahold ends 2004 on a high with sale of US chains

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Ahold has moved a step closer to completing its programme of
disposals aimed at plugging the fraud-related €1 billion hole in
its accounts. The sale of BI-LO and Bruno's in the US will bring in
up to $660 million, and leaves the Dutch company well on track to
further reduce its debts in 2005, writes Chris Jones.

The sale of the US units, first announced in February 2004, is due to be completed by the end of February, and will see the two businesses acquired by investment group Lone Star Funds. An initial payment of $560 million will be followed by up to $100 million more within 18 months should the businesses meet their trading targets.

BI-LO and Bruno's are two of the leading food retail chains in the south eastern region of the United States with a combined store count of over 450 supermarkets and combined 2003 net sales of approximately €4.7 billion.

"This divestment comes at the end of a year of transition for Ahold and marks a major milestone along our Road to Recovery,"​ said Ahold president and CEO Anders Moberg. "Divesting BI-LO and Bruno's is part of our strategy to optimise our portfolio and strengthen our financial position by reducing debt. Our US retail business will be fully focused on our other prominent supermarket operations, Stop & Shop, Giant-Landover and Giant-Carlisle and Tops."

Dean Cohagan, president and CEO of BI-LO and Bruno's who will remain at the company following the sale, said: "We will now become a regional supermarket operator - one that will be fast-moving, flexible and responsive. We will be a company capable of taking decisive actions based on the needs of our business, our customers and the competitive dynamics of our local and regional markets. Our goal is to be the best supermarket business in the south east."

The sale to Lone Star came as something of a surprise, with plenty of potential retail buyers thought to have been in the running. According to analysts from M+M Planet Retail​, chains such as Publix, with existing operations in the south eastern US, or international groups such as Delhaize or even Tesco had been considered possible bidders.

However, the fragmented nature of the US market, and the difficulties experienced by a number of chains over the last few years (such as Delhaize's Food Lion unit, which has been forced to revamp most of its operations in the face of dwindling consumer spending levels) appears to have left most retail operators cautious about overextending themselves.

But M+M Planet Retail's analysts nonetheless welcomed the sale, despite the fact that it will shave nearly $5 billion off Ahold's US turnover. The US will remain Ahold's largest contributor to group turnover, with a forecasted proportion of over 55 per cent in 2005, the analysts said, although the Dutch group will finally lose its place as the world's third-largest retailer to Germany's Metro Group as a result.

"Although Ahold will be licking its wounds for some time, it will be some consolation that the divestment of non-core units has helped to reduce net debts. Some sales, such as Disco in Argentina, were achieved with difficulties and financial losses, while others such as Bruno's and BI-LO's, were completed satisfactorily,"​ M+M Planet Retail said.

"However wobbly looking at times, Anders Moberg's 'Road to Recovery' plan is on track. For answers of what the future holds for Ahold, such as the further sale of units or a stabilising of its decline, we look forward to 2005."

In 2004, the Road to Recovery also saw the sale of Ahold's Spanish operations (to private investment group Permira in December), as well as its withdrawal from Brazil (Bompreco was sold to Wal-Mart in March, while G. Barbosa's sale to ACON Investments, a US-based investment firm, was confirmed on 31 December) and Asia (the last Asian unit, CRC Ahold in Thailand, was sold in March).

But the proposed sale of the Argentine unit Disco to Chile's Cencosud group continues to drag on. Ahold agreed to sell the company to Cencosud, but the Chilean firm withdrew its offer amid concerns over its potential liability for debts accrued by Ahold's former partner in Disco, Velox.

The two parties agreed to a sale once again in March 2004, but further court decisions have delayed final approval of the deal with looks unlikely to be completed any time soon.

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