Ahold set to acquire 50% of ICA Group, the leading Scandinavian food retailer

Thursday, December 09, 1999

The ICA Group was formed earlier this year through a merger between Sweden's ICA Handlarnas AB and Norway's Hakon Gruppen AS. The ICA Group also has a 50% stake in Statoil Retail, generating sales of $2.5 billion through 1,500 Statoil gasoline stations in Denmark, Norway and Sweden. Sales of Statoil will not be consolidated in Ahold's accounts.

ICA financial background

The ICA Group's 1999 net sales are expected to amount to $6.7 billion with EBIT estimated at $154 million (2.3% of sales). This excludes income from Statoil Retail. The Group is privately held and therefore not listed on a stock exchange. ICA Frbundet, the association of Swedish ICA retailers, holds a 37.9 % stake. ICA retailers directly hold 32% of the shares. The Norwegian Hagen family, through its holding company Canica, holds a 26.5% stake.

New structure

Under the initial agreement, Ahold and the current main shareholders of ICA, ICA Frbundet and Canica, will each take a 50% share in a new entity to hold all current and future activities of the ICA Group in northern Europe. The transaction includes the ICA Group's operations in Sweden and Norway, its 50% stake in Statoil Retail, operations in Baltic countries and various other interests such as institutional food supply operations. Four members of the ICA Group have a seat on the Board of the new alliance. Roland Fahlin, currently Chairman and CEO of the ICA Group, will be Chairman and Stein Erik Hagen will be Co-Vice Chairman. Among the four representatives from Ahold, Jan Andreae, member of the Corporate Executive Board responsible for European activities, will act as Co-Vice Chairman of the new joint venture Board.

Ahold to pay $1.8 billion for its 50% stake in ICA

Under the initial agreement to acquire 50% of the ICA Group, Ahold plans to pay a total of approximately $1.8 billion. The transaction is subject to conditions including the full acceptance by ICA Frbundet, a due diligence review conducted by Ahold and approval by anti-trust authorities. An extraordinary shareholders meeting of the ICA Group to approve the transaction is scheduled for March.

The impact of the transaction on Ahold's earnings per share will be positive in the year 2000, growing gradually thereafter. Ahold will finance the transaction in line with past practice, which may include an equity offering. Ahold will announce details after the signing of the final contract, scheduled for the end of January 2000. The transaction is expected to close by mid-2000.

Earlier the ICA Group had contemplated a partial float of its shares to finance further growth and international expansion. However, retailers/shareholders of the Group and management clearly prefer teaming up with Ahold. It not only provides excellent financial compensation to current shareholders but also contributes state of the art retail expertise and full access to Ahold's European and worldwide network, vital to long-term continuity in today's rapidly-changing food retail environment.

Royal Ahold

Upon completion of the transaction, Ahold will generate worldwide annualized sales of approximately $41 billion, of which about $19 billion will be generated from its European operations. This will rank Ahold among the larger European food retailers in terms of sales. Joining forces with the ICA Group in Scandinavia is fully in line with Ahold's ambition to become the world's best and most successful supermarket company. The transaction supports Ahold's position as a global player and significantly strengthens its European position. Ahold currently employs 300,000 people worldwide.

ICA Group

The privately-held ICA Group was formed earlier this year through a merger between Sweden's ICA Handlarnas AB and Norway's Hakon Gruppen AS. The company is renowned for its seamless store network, entrepreneurial spirit, strong brand name and the quality of its customer services. Directly and indirectly (through its associated retailers), the ICA Group employs 35,000 people in Sweden and 12,000 people in Norway. The ICA Group and Ahold are members of AMS, a marketing alliance of prominent European food retailers.

In total the ICA Group services 4,600 stores, of which 3,100 are supermarkets, superstores, hypermarkets and discount stores, and 1,500 are convenience stores at Statoil gasoline stations. Last August, the ICA Group became 50% owner of a joint venture with Statoil, the foremost oil company in Norway and Scandinavia. Known as Statoil Retail Scandinavia, the joint venture's 1,500 gas stations are located in Sweden, Norway and Denmark. Sales currently amount to $2.5 billion.

In Sweden, ICA has been market leader since 1970, with a market share of approximately 35%. All ICA retailers are members of the ICA Association (known as the ICA Frbundet). The retailers own the store they operate and work under a supply and marketing agreement with the ICA Group. The store portfolio consists of five formats, including 1,180 Nra neighborhood stores, 635 local Plus supermarkets, 155 large Kvantum supermarkets, 80 Rimi discount stores and 23 Maxi hypermarkets. Currently, the ICA Group's Swedish consumer sales amount to approximately $6.4 billion.

In Norway, the Hakon stores of the ICA Group have a market share of 27.7%, making it second in terms of market share with consumer sales of approximately $2.0 billion. The store portfolio consists of four formats, including 505 Rimi discount stores, 161 Sparmat neighborhood stores, 93 ICA supermarkets and seven ICA Maxi hypermarkets. In addition, the ICA Group owns stores in two Baltic states -seven in Latvia and one in Estonia- and operates 11 stores through a joint venture in Lithuania.

Substantial benefits from synergy

The partnership between Ahold and the ICA Group is expected to generate synergy savings in 2001 of approximately $35 million (0.5% of total 1999 ICA Group sales) on top of the synergies to be generated from the 1999 merger between ICA and Hakon. These synergies are expected to increase gradually thereafter and will be found in procurement, development of private label brands, store operations, logistics, distribution, IT, business development and themerchandising of non-food items. ICA retailers and consumers in Sweden and Norway are expected to benefit from the alliance through pricing initiatives, store upgrades and enhanced services to make the associated ICA Group stores even more competitive. The pricing initiatives in particular reflect increased volume and cost savings from best practice exchange and the sharing of experience, expertise and knowledge.

Remarks by Cees van der Hoeven, Ahold President and CEO

'Joining forces with the ICA Group considerably strengthens our European position. This is one of the most sizeable transactions in our company's history. The partnership is expected to have an immediate and sustained impact on net earnings and earnings per share. The excellent business case enables us to achieve the desired scaling up of our European stature with a known partner in a proven structure on a basis that is EPS enhancing. It strengthens our European base and positions us strategically for future steps. Our market leading positions help protect our profitability and optimize our growth prospects in a unifying Eurozone. And together with our partner's strong management team and successful operator entrepreneurs, we will develop the efficiencies and service enhancements that today's consumers demand. The exchange of European and global know-how, the pooling of expertise and the joint generation of new growth in northern Europe are now very much on the agenda. We are convinced of the fit between our cultures and welcome this Scandinavian thoroughbred into our stable. The venture is timely, right for all stakeholders and fully in line with our ambition to become the world's best and most successful supermarket company. We're very pleased.'

Remarks by Roland Fahlin, Chairman & CEO of the ICA Group

'In today's retail environment, teaming up with Ahold provides all ICA retailers and other stakeholders with a most positive outlook on future prosperity. The new partnership we are forging is better suited to cope with future developments, particularly as we will safeguard the entrepreneurial spirit and ownership that have made our companies so successful. Facilitating the decision was our conviction that Ahold is a highly professional food retailer whose mission, vision and strategic objectives are in line with ours. We speak the same retail language, believe in the same values and hold similar views on important cultural issues. The partnership we agreed upon encompasses both an excellent financial proposition as well as superior tools to improve our businesses, jointly grow, prosper and meet competitive challenges. It is by far the best direction for all involved to follow.'

Remarks by Jan Andreae, Ahold Board member responsible for European activities

'We know the ICA Group as a first-class organization. We admire the contributions of their store owners and how they have grown the business over the years. Entrepreneurial qualities and personal involvement with the business are instrumental to success, now and in the future. It is our joint objective to maintain and strengthen the local identity of the stores and their strong brand names. It is exciting to see how Ahold companies and alliance partners today benefit from regional and global sourcing activities that will soon be made available to Scandinavia. Altogether it makes us very successful. We can't wait to start.'

Remarks by Stein Erik Hagen, ICA Group Vice Chairman and Vice CEO

'This is the ideal way for the ICA Group and Hakon Gruppen to further prosper in Norway and Sweden as well as in other northern European countries. Once the transaction has been completed, we can accelerate growth at home as well as abroad. For members of the ICA retailers association, the partnership offers the opportunity to realize the value of their ICA Group holdings and continue to operate in their personal style. For the Hagen family, the partnership with Ahold stands for international quality, for utilizing scale and volume, and for working together across borders to the benefit of all stakeholders. The ICA Group gains unrestricted access to Ahold's knowledge network with best practice exchange and specialist consultation at practically all levels. Our Norwegian and Swedish suppliers can benefit from the new partnership. They are able to export their products and services outside Sweden and Norway by using the expansive Ahold network. These are exciting times for all of us.'

Highlights of the announcement:

- Ahold signs heads of agreement to acquire 50% of ICA Group, supermarket leader in Scandinavia

- 3,100 additional stores with net sales of $6.7 billion boosts Ahold's sales in Europe to approximately $19 billion

- In addition, 50% stake of ICA Group in 1,500 Statoil gasoline stations with sales of $2.5 billion

- Joint venture offers significant opportunities for synergies, economies of scale and regional growth

- Ahold to pay $1.8 billion to ICA shareholders

- Funding consistent with existing Ahold financing policy

- Transaction will contribute to Ahold EPS growth in 2000 and thereafter