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Rating Action:

Moody's places Delhaize Group's Baa3 rating on review for upgrade following proposed merger announcement

25 Jun 2015

London, 25 June 2015 -- Moody's Investors Service has today placed the Delhaize Group's Baa3 long-term issuer and senior unsecured rating on review for upgrade. Moody's has also placed Delhaize America, LLC's Baa3 senior unsecured rating on review for upgrade, as the group's affiliate.

"We are considering an upgrade of Delhaize's ratings following yesterday's announcement of a proposed combination of businesses with Ahold, through a merger of equals," says Sven Reinke, a Moody's Vice President -- Senior Analyst and lead analyst for Delhaize. "Our review will primarily focus on the effect on Delhaize's business profile and potential synergies of the proposed merger."

RATINGS RATIONALE

Today's rating review follows Koninklijke Ahold NV's (Ahold, Baa3 RUR-UP) and the Delhaize Group's (Delhaize) announcement of their intention to merge both companies in an all-share transaction. At completion, Delhaize shareholders will receive 4.75 ordinary shares of Ahold for each ordinary share of Delhaize. Ahold's shareholders will own about 61% of the combined company's equity and Delhaize's shareholders will own about 39% of the combined company's equity. The transaction is likely to close in mid-2016, subject to certain regulatory approvals and shareholder consent.

Moody's views the proposed merger as beneficial for both companies, as it would create a leading food retailer in Benelux, the eastern states of the US, as well as some parts of eastern and south-eastern Europe. The rating agency also believes that the combination of the two businesses would be a logical step towards a financially stronger player in a consolidating industry, where economies of scale and purchasing power are key success drivers. The transaction's structure supports the combined entity's credit profile, as it is an all-share merger without additional incremental debt.

The proposed combined company, named Ahold Delhaize, will have a portfolio of strong retail banners, with more than EUR54 billion in sales and 375,000 associates. The combined company targets to attain run-rate synergies of €500 million per annum in the third year after completion. Achieving these synergies would entail one-off costs of €350 million. Moody's views positively that Delhaize and Ahold stated that the combined entity is committed to an investment-grade credit rating and that they expect to adopt a dividend policy with a pay-out ratio of 40-50% of adjusted net income.

Moody's review will focus mainly on (1) the positive effect of the proposed merger on Delhaize's business profile; (2) the magnitude of synergies that a merger could deliver as a result of combined purchasing and administrative efficiencies; (3) the credit implications of the group structure of the proposed combined entity; and (4) the impact on the credit profile of the combined entities' financial policy post the merger.

Delhaize will be merging with Ahold which we currently rate Baa3, RUR-UP. Although Ahold will pay EUR1 billion via a capital return and a reverse stock split to its shareholders prior to the merger, it will be fully funded with existing cash resources and not require incremental debt. In combining with Ahold, we expect that the combined group's credit profile will be supportive of a rating above current Baa3 for each company.

At this stage, Moody's expects that the potential upgrade owing to the proposed transaction is limited to one notch.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Retail Industry published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Delhaize is an international food retailer with operations in 7 countries across North America, Europe and Asia. Delhaize generates most revenues from the US (63% of total revenues in 2014), a market the group entered in 1974 and where it remains concentrated in the eastern states under the banners of Food Lion and Hannaford. In its home market of Belgium (23% of 2014 revenues), the group mainly operates under the Delhaize Le Lion, AD Delhaize, Proxy Delhaize, Shop & Go and Tom & Co banners. In 2014, Delhaize reported revenues of EUR21.4 billion.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Sven Reinke
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's places Delhaize Group's Baa3 rating on review for upgrade following proposed merger announcement
No Related Data.
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