Giant deal fuels offering Ahold is financing purchase via stock sale of up to $2 billion

Maximizing and minimizing

August 25, 1998|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Royal Ahold NV, the international food retailer buying Giant Food Inc. of Landover, said yesterday that it plans to sell as much as $2 billion worth of common shares to finance the acquisition.

Royal Ahold said it might also issue convertible bonds to finance part of the $2.7 billion transaction.

A syndicate of banks led by Goldman Sachs International and ABN AMRO Rothschild is preparing the offering, which will be detailed in a preliminary prospectus available Sept. 8, the company said.

Ahold has set its offering for Sept. 10 through Sept. 24.

The Netherlands' biggest retailer, which already owns four grocery chains on the U.S. East Coast, filed with the U.S. Securities and Exchange Commission in May to sell up to $3 billion of debt securities and stock in the next two years, to raise capital for the deal.

"Clearly what they've tried to do is look for ways to get the cash in to pay for the Giant acquisition so they maximize the balance sheet and minimize the leverage," said David Shriver, who follows Ahold as director of retail research for Credit Suisse First Boston in London.

"They have thought long and hard about ways of structuring the terms of the deal to optimize the whole exercise" -- to avoid becoming over-leveraged and hurting the company's debt rating.

Ahold is awaiting antitrust approval from the Federal Trade Commission, which it needs before it can proceed with the offering. The sale would make Royal Ahold the fifth-largest U.S. supermarket company and boost its sales to $35 billion from $26 billion last year.

"We are still in active discussions with the staff of the FTC and other regulatory authorities regarding the terms and conditions required for antitrust approval," said Nick Gale, a spokesman for Royal Ahold in Holland.

"We do expect to have reached agreement with the staff of the FTC within the coming weeks," Gale said.

Though no final decisions have been made, the FTC will likely require Ahold to divest as many as 10 grocery stores in Maryland and Pennsylvania, Gale said.

In Maryland, those supermarkets would be either Giant Food stores or Martin's Food Markets, owned by another Ahold chain, Giant Food Stores Inc. of Carlisle, Pa.

The FTC is reviewing regions in which the two chains compete to prevent Ahold from gaining dominance. Because of antitrust regulations, the FTC would require that any targeted stores be sold to another supermarket chain rather than closed.

In their talks with the FTC, Ahold officials have said they are identifying potential buyers.

Unionized workers at Giant Food, consumers and even Maryland Attorney General J. Joseph Curran Jr. have lobbied the FTC to keep as many as five Maryland Giant stores from being sold.

Giant, the Baltimore region's largest supermarket retailer with $4.3 billion in annual sales, operates 179 Giant and Super G stores in Maryland, Virginia, Delaware, New Jersey, Pennsylvania and Washington.

When asked whether Ahold could proceed with the offering if the FTC issues no ruling by Sept. 10, Gale said, "We're not going to look at that scenario until it happens."

"I presume [Ahold] has a strong indication it will get the formal go-ahead," Shriver said.

Pub Date: 8/25/98

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