Giant Food being sold Surprise buyer is Royal Ahold of Netherlands

$2.7 billion in cash

Shoppers likely to see few changes

no layoffs expected

May 20, 1998|By Jay Hancock and Lorraine Mirabella | Jay Hancock and Lorraine Mirabella,SUN STAFF

Giant Food Inc., the homegrown chain that has dominated the Baltimore-Washington supermarket business for decades, has agreed to sell itself to a huge European grocer -- just not the huge European grocer everybody expected.

Landover-based Giant will be bought for $2.7 billion cash by Royal Ahold N.V., a fast-growing, Netherlands-based corporation that already owns several U.S. grocery operations, the companies said yesterday.

Among the shareholders selling to Ahold is J. Sainsbury PLC, a British supermarket concern that has owned a piece of Giant for several years and was widely expected to someday buy up the rest.

But Sainsbury has been distracted by problems recently, industry analysts said, and was in no position to swing a deal of nearly $3 billion. Giant, meanwhile, felt pressure to find a bigger partner as mergers swept through the grocery business.

The result: Giant's 179 stores are to be folded into Ahold's growing retail empire stretching from New Hampshire to Georgia.

Ahold has financing commitments for the deal, and because it has locked up agreements to acquire all Giant's voting shares, analysts don't expect someone else to make a higher bid. The merger is expected to go through in September or October.

Shoppers in Maryland, Washington and Virginia should detect little difference in the Giant stores, at least at first, analysts said.

They'll keep the Giant name. Few if any stores are expected to open or close as a direct result of the merger, although some Giant stores overlap with an Ahold-owned chain in the Philadelphia area.

In a day when corporate mergers frequently eliminate thousands of jobs, Ahold managers took pains yesterday to say that they prefer locally managed chains and plan to keep Giant talent -- including Chief Executive Pete Manos.

"There won't be any changes," said Giant spokesman Barry Scher. Manos "is 61, very healthy."

But one analyst questioned whether Manos will last long, especially if Giant doesn't recover from a two-year profit slump that started with a crippling Teamsters strike in 1996.

"I don't think so," said Kenneth M. Gassman, who follows Giant for Davenport & Co., a Richmond, Va. investment firm. "I'll bet he doesn't stay. Ahold is a tough operator and will hold management's feet to the fire."

Ahold agreed to pay $43.50 per share for Giant's publicly traded, nonvoting stock, a substantially higher price than the shares had been commanding. Giant's nonvoting "A" shares popped $5 yesterday, closing at $42.69.

Among the recipients of Ahold cash will be Manos, who stands to get $6.8 million, according to regulatory filings; Sainsbury, which will collect more than $600 million; and a foundation set up by one of Giant's founding families. The foundation will get $5.4 million.

Founded in Feb. 6, 1936, by the Cohen and Lehrman families, Giant commands close to 30 cents of every nonrestaurant food dollar spent in the Baltimore-Washington area, according to Food World, a trade monthly based in Columbia. That's the No. 1 market share.

The $2.7 billion price being paid by Ahold "is premium for quality," said Robert Zwartendijk, president and chief executive of Ahold USA, based in Atlanta. "We think that Giant is one of the first-class companies in the United States."

While Ahold was a surprise spouse for Giant, analysts said it makes sense for Giant to join a growing list of consolidating supermarket companies.

"It's tough out there," -- even for companies such as Giant with solid reputations and strong name recognition, said Sally Wallick, a retail analyst with Legg Mason Wood Walker Inc. in Baltimore.

The pace of consolidation has accelerated over the past few years as competition among grocery and nongrocery retailers has intensified, she said.

Giant Food would become Ahold's fifth acquisition in two years, and it would make Ahold the No. 4 U.S. supermarket operator, after Kroger, Safeway and American Stores. Other Ahold-owned chains include Stop & Shop in New England; another chain named Giant, in Carlisle, Pa.; Bi-Lo in the South; and Tops in Ohio and Upstate New York.

Because Ahold owns few stores in the areas where Giant of Landover does business, analysts expect federal antitrust regulators to approve the deal.

Whatever happens to top management in Landover, big layoffs would be unlikely, analysts said.

"One of the strengths of Ahold is they buy these companies and let the local company run it because they know the local market position the best," said Jeff Metzger, publisher of Food World. "They're buying companies that are No. 1 in the market, and they didn't get to be No. 1 by being poorly managed. They pay a premium for the name and the market share."

Instead of cutting labor costs, Ahold will try to wring efficiencies from the Giant merger by buying in larger volumes, by combining expertise in "private label" house goods and perhaps by combining computer systems, executives said.

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