Ahold Leaves Door Open to Acquisitions Ahead of ICA Cash Influx

Royal Ahold NV, the Dutch owner of the Stop & Shop chain, left open the possibility of acquisitions as it considers how to utilize cash raised from the $3.1 billion disposal of its stake in Swedish retailer ICA.

Any idea will be considered in the search for growth, Chief Executive Officer Dick Boer said by phone after Amsterdam-based Ahold reported a drop in fourth-quarter profit and plans to buy back 500 million euros ($657 million) of shares.

“We have the opportunity as a company to build on the capabilities we have to grow our business from an organic point of view as well as from an acquisition point of view,” he said. “I don’t exclude any possibility on how we look at growth.”

Ahold this month announced the disposal of its 60 percent stake in ICA, leading to speculation as to what it would do with its excess cash. The company has expressed interest in Harris Teeter Supermarkets Inc., the U.S. grocer that’s exploring a sale, people with knowledge of the matter said last week. Ahold today declined to comment on Matthews, North Carolina-based Harris Teeter, whose market value exceeds $2.1 billion.

“Until such time as Ahold decides what to do with the ICA proceeds, investors will fret that it could be recycled into injudicious acquisitions,” analysts at Exane BNP Paribas wrote in a note today. “They’ll have to worry a little more as no decision has emerged today.”

Ahold shares rose 1 percent to 10.99 euros at 12:16 p.m. in Amsterdam. They’ve advanced 8.4 percent this year.

Harris Teeter

After completion of the buyback and the ICA sale, the company will have almost 3 billion euros at its disposal for acquisitions, according to James Grzinic, an analyst at Jefferies International in London.

“Maintaining strong levels of liquidity at a time when M&A opportunities seem to be arising thick and fast seems a very sensible course of action,” Grzinic wrote in a note. Harris Teeter would be “an ideally suited candidate,” he said.

Harris Teeter disclosed this month that it hired JPMorgan after receiving advances from two private-equity firms.

Ahold today reported free cash flow at a record of 1.2 billion euros in 2012. The company proposed a 10 percent increase to its dividend to 44 euro cents a share.

Under Boer, the grocer is pushing sales growth online, adding pick-up points for commuters to grab ordered groceries in Europe and the U.S., and expanding internet retailer Bol.com. The owner of the Dutch Albert Heijn chain aims to triple online sales to 1.5 billion euros by 2016. In addition, Ahold added stores in the Netherlands via the purchase of shops from C1000 and Jumbo and the acquisition of Genuardi outlets in the U.S.

‘Declining Market’

Ahold is having a “harder time” with non-food in the Netherlands, with customers “even more cautious in their spending,” Boer said. Though with the acquisition of Bol.com, the company had “double-digit growth in non-food,” he added.

“We’re in a growth area in a declining market. If the market was growing again it would be an even more beneficial situation,” the executive said.

Fourth-quarter net income fell to 158 million euros from 270 million euros a year earlier as Ahold took a writedown of 88 million euros for software related expenses. Analysts expected net income of 265 million euros, according to the average of eight estimates compiled by Bloomberg.

Underlying operating income rose 4.1 percent to 355 million euros, beating the 344 million-euro average estimate of eight analysts. Operating margin fell to 4.5 percent of sales from 4.7 percent in the year-earlier period amid higher wages in the Netherlands and increased promotional activity.

Stronger Sales

Offering discounts “is a new reality,” Boer said in a phone interview. The CEO said he raised the target for the company’s 2012-2014 cost reduction program to 600 million euros from 350 million euros to be sure Ahold “can finance the value proposition” for its customers. The grocer is investing in private labels for every price point, he said.

“We remain cautious in our outlook for 2013,” Boer said in a statement today.

Sales rose 7.5 percent to 7.8 billion euros in the fourth quarter, led by stronger U.S. sales than some analysts anticipated, Ahold said in January. For the whole year, sales gained 8.5 percent, while only growing 3.5 percent at constant exchange rates. Ahold doesn’t expect any dramatic change in the exchange rate this year “from the current position,” Chief Financial Officer Jeff Carr told journalists.

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