Analysts Peter Brockwell and John David Roeg of ING believe Royal Ahold can be bought on the cheap, according to a Bloomberg report. Tesco, they suggest, is the logical choice to buy Ahold and its grocery chains on the East Coast.
"The U.S. market is too big to ignore, yet any attempt to increase the scale of Fresh & Easy (Tesco's chain on the West Coast) could prove very risky," the analysts wrote. "Ahold should be viewed as a one-off opportunity to acquire an undervalued asset at a low point in the U.S. consumer cycle."
Buying Ahold's U.S. businesses would add about 700 grocery stores in the eastern part of the country to the 115 Fresh & Easy stores Tesco has opened out West since 2007.
Ahold, which expects its U.S. business to post a loss in the first half, has made some market share gains against competitors including Safeway and Supervalu.
"A tie up with Ahold would enable Fresh & Easy to benefit from more favorable supplier terms, give it access to Ahold's talented U.S. management team as well as enable Fresh & Easy to scale back the size of its overhead cost base," the ING analysts wrote in a research note.
Other analysts believe Ahold should be on the lookout for acquisitions based on major savings achieved by the company over the past year. The company is looking to achieve further cost-savings over the next fiscal year that could be used to buy back shares or acquire other businesses.
A Tesco spokesperson told Reuters, "We never comment on market rumors and speculation."
Discussion Questions: Do you see Ahold as more likely to make an acquisition or to be acquired? Does a Tesco acquisition of Ahold make sense based on the two companies' respective businesses in the U.S.?