Ahold vulnerable on Stichting expiry and doubts over 'time-out' law – sector advisers

07 August 2017 - 04:36 pm UTC

  • Investors pressuring for US corp governance model 
  • 'Time-out' law looking less certain as a back-up defense 
  • Activists could prime company for takeover

Ahold Delhaize [AMS:AD] could emerge as the next major Dutch takeover or activist target as its protective Stichting foundation is set to expire, several sector advisers said. The company could be even more vulnerable if uncertainty remains over the introduction of a new law to protect Dutch firms from hostile bids, they said.

Consolidation in the food retail sector and Ahold’s relative undervaluation may make the company an attractive prospect for activists, with the removal of the foundation potentially increasing the value of the stock and giving shareholders more say in any takeover approach, the advisers said. Such anti-takeover defences are often said to cause a “Dutch discount” on the market value of a company, but the incidence of this is debatable, the advisers said.

Ahold's Stichting, which was put in place in 2003, is set to expire in December 2018. According to Dutch press reports, Ahold's management will not ask shareholders to extend the lifetime of the foundation next year when it comes up for renewal. Shareholders, particularly Anglo-Saxon investors, are reportedly opposed to the renewal of the Foundation.

Stichting foundation is a dormant independent entity linked to the company that can intervene in the event of a takeover offer, effectively taking strategic decisions out of the hands of the board or shareholders.

An absolute majority of shareholder votes in favour is required to extend the Foundation, a spokesperson for Ahold said. "The agenda for next year’s meeting of shareholders will be published at the beginning of 2018. We will not speculate about the agenda for 2018," the spokesperson said in an emailed response to this news service.

The company has strong Dutch and Belgian origins, but Ahold’s business has a heavy US weighting. Its US business accounts for 62% of its net sales. As of February 2017, 20% of the company’s shareholder base is from North America, 17.7% is from UK and Ireland, and only 3.8% from the Netherlands. And 31.2% is classified as undisclosed.

Ahold will likely have come under pressure from investors to reflect US standards of corporate governance and openness to approaches, said a sector lawyer who has worked with the company in the past.

It could rationalise its corporate structure, shedding the foundation as an “unnecessary Dutch trapping” similar Unilever’s [AMS:UNA] rumoured move to abandon its dual London-Amsterdam configuration after coming under direct pressure from Kraft Heinz [NASDAQ:KHC], a retail sector banker said.

With consolidation rife in the global food and retail sector, the removal of Ahold’s takeover defence could leave the company especially vulnerable, sector advisers said.

But, Ahold has a very good name in the Dutch public’s opinion and an unfriendly approach would not be well received, a Dutch banker said.

Dutch legislation?

In place of the foundation protection, Ahold could look to benefit from the potential introduction of legislation by Dutch Minister of Economic Affairs, Henk Kamp, designed to help Dutch companies ward off hostile takeovers, said a second sector lawyer.

This view was reaffirmed by the Ahold spokesperson who, when asked what alternative takeover defence the company could employ if its Stichting is scrapped, said the company has taken note of the Minister’s plan to allow companies a year’s thinking time. The spokesperson said it was “also important that a good process exists that ensures that the interests of all parties involved are protected”.

Kamp proposed a 'time-out' law to give Dutch companies a statutory period potentially of up to a year to respond to an unsolicited approach. The proposal followed unsolicited approaches for PostNL [AMS:PNL], Unilever
[AMS:UNA] and Akzo Nobel [AMS:AKZA] by foreign suitors.

But, the introduction of this law is now in doubt, according to the two Dutch lawyers. "There is no political consensus on what should be done," pointed out the second lawyer. The one year waiting period could be in breach of EU law and even Kamp's own party, the VVD, does not back it, this lawyer said. The first lawyer said “the market” was also against Kamp’s proposals.

Kamp has also had to dial down his zeal for the proposal. Initially stating that he would attempt to instate the law prior to the formation of a new coalition government, he has now said it would be a matter for the next government, both lawyers observed.

In his most recent letter to the Dutch parliament, Kamp said there was no final proposal for the law yet and that the ministry is “currently exploring a variety of options through discussions with a large number of stakeholders”, a spokesperson for the economics ministry said.

The minister’s letter distinguishes between invoking the period in case of shareholder activism or in case of a takeover bid. Other issues being looked at include which specific events could trigger the period, the spokesperson said.

Kamp said he believes it is up to the new, as-yet unformed Dutch cabinet to decide whether to put forward a final proposal on the law, the spokesperson said.

Break-up and activist target 

Ahold has been touted as a target for global retail consolidators such as Amazon [NASDAQ:AMZN] and Kroger [NYSE:KR], according to a Dutch press report. Ahold’s US business is of particular interest, the report said.

Amazon’s proposed purchase of Whole Foods [NASDAQ:WFM] will transform grocery retailing and could force other grocers such as Ahold to acquire tech assets or be acquired themselves, the retail sector banker said.

If an industry player or a private equity consortium were to acquire Ahold, the company would likely be broken up, the retail sector banker said.

The company could also be attractive to activist investors because it is well run, but undervalued and subject to takeover speculation, a third sector lawyer said.

With the pending removal of the foundation, Ahold’s shareholders may be able to sway the company’s board into a certain course of action, which might make it more appealing to potential acquirers, the first sector lawyer said.

Activist shareholders can try to prime the board for a takeover, gauge other shareholders’ support and “do the dirty work” in terms of taking litigation and encouraging public pressure on the board to consider a transaction, the same lawyer said.

An activist could also encourage an asset sale to a potential buyer, or oppose an asset sale which the company proposes as an alternative to a full takeover, as Elliott Management has with Akzo, the first lawyer said.

Asset sales that represent more than a third of the net asset value of the company must be voted on by shareholders, he noted.

Aside from any proposal put forward by Kamp, Dutch companies can currently invoke a “180-day rule”, which allows them a period to consider investor requests for items to be placed on shareholder meeting agendas, the second lawyer said. The rule comes under the Dutch Corporate Governance Code.

by William Mace, Heba Abdelrahman, Myriam Balezou and Deane McRobie