Ahold May Return About $2 Billion in Share Buyback From ICA Sale

Royal Ahold NV, the Dutch owner of the Stop & Shop chain, may say next week it plans to buy back at least 1.5 billion euros ($2 billion) of shares with the proceeds from selling a stake in Sweden’s largest food retailer ICA.

Anything less than a 1 billion-euro “upfront return” would be disappointing, said John Kershaw, an analyst at Exane BNP Paribas. He expects the retailer to return 1.5 billion euros through a special dividend and share consolidation, while adding 500 million euros to the buyback program announced on Feb. 28.

An announcement is expected by analysts when Amsterdam-based Ahold announces first-quarter results on June 4. The owner of the Albert Heijn chain sold its 60 percent stake in ICA to Hakon Invest AB, a Swedish investment company, for $3.1 billion in February. The Dutch retailer had announced in September it was exploring alternatives for its stake because it aimed to focus on the businesses that it controls.

“I expect them to tell the market they will give back proceeds from the ICA sale in full,” Robert Jan Vos, an analyst at ABN Amro in Amsterdam, said in a phone interview. “They could do a split between 1 billion euros in capital payments and on top an additional 1.5 billion-euro share buyback.”

Mike Dennis, an analyst at Cantor Fitzgerald, expects the company to announce a repurchase or tender of 1.8 billion euros, while Marco Gulpers at ING in Amsterdam sees Ahold returning “a large part of the cash proceeds,” he said in a note.

Still, not all analysts are convinced that Ahold should redistribute all of the sale proceeds. Acquisitions are another possibility, according to Fernand de Boer at Petercam SA.

M&A Opportunities

“I don’t expect much on Tuesday because I think management wants to give themselves more time to look at opportunities,” De Boer said in a phone interview. “If they announce a huge share buyback then they will have less room to maneuver for good M&A opportunities. Giving all the money back to shareholders within a few months doesn’t make much sense.”

De Boer views an acquisition of U.S. grocery-store chain Harris Teeter Supermarkets Inc. as unlikely because the valuation of that business is “fairly demanding” and Harris Teeter has a “different distribution philosophy.”

The Matthews, North Carolina-based retailer has attracted interest from Ahold, people familiar with the matter said in February. Harris Teeter disclosed in February that it hired JPMorgan Chase & Co. after receiving advances from two private-equity firms. The company has a market value of about $2.3 billion after the stock gained 23 percent this year.

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