Tesco should consider buying Amsterdam-based Royal Ahold NV at a cost of about US$22.2bn (€15bn) in an effort to further its hold on the US retail market, according to a report by Bloomberg.com.
Ahold, the owner of Stop & Shop and Giant supermarkets in the US, is “cheap on all metrics”, which may lead to takeover interest, analysts Peter Brockwell and John David Roeg wrote in a note dated 30 October and received today (Wednesday 4 November).
ING said that the US market was too big for Tesco to ignore but that any attempt to increase the scale of Fresh & Easy, its loss-making US division, could prove very risky.
“The US market is too big to ignore, yet any attempt to increase the scale of Fresh & Easy could prove very risky,” ING analysts wrote. “Ahold should be viewed as a one-off opportunity to acquire an undervalued asset at a low point in the US consumer cycle.”
“A tie up with Ahold would enable Fresh & Easy to benefit from more favorable supplier terms, give it access to Ahold’s talented US management team as well as enable Fresh & Easy to scale back the size of its overhead cost base,” ING added.
ING suggested that Tesco should be able to finance a potential US$18.9-a-share bid (€12.8), which would potentially add as much as 20 per cent to the UK group’s 2011 earnings per share (depending on synergies) estimated at about US$814.6m (€552.3m).
Tesco declined to comment on the takeover speculation.
Ahold operates more than 700 outlets in the US, trading under the Stop & Shop and Giant names, compared with Tesco’s 126-strong Fresh & Easy store network.
