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Report: Ahold exploring deal with Kroger

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Report: Ahold exploring deal with Kroger

Kroger Co. might be headed for a deal with Koninklijke Ahold Delhaize NV, according to a Bloomberg story that Sanford C. Bernstein cited in a research note and Cincinnati Business Courier cited in its own story.

In a research note published Oct. 3, Bernstein analyst Bruno Monteyne referenced a report by Bloomberg, which claimed that the Dutch owner of Food Lion and Stop & Shop has hired advisers to study a potential acquisition of Cincinnati-based Kroger. Ahold is reportedly considering paying $32 a share for Kroger, according to Monteyne's note and the Courier.

Shares of Kroger were 0.24% lower at $20.51 in late morning trading on the New York Stock Exchange on Oct. 4. The grocer's stock closed about 3% higher on Oct. 3, the same day Monteyne published his note referencing the Bloomberg report.

Both Ahold and Kroger said that they do not comment on rumors or speculation.

Monteyne wrote that a deal between the two companies could make sense if the companies pursue a specific set of terms, some of which differ from what Bloomberg reported.

For one thing, any Ahold-Kroger deal would need to be a "merger of equals," forming a new company much as Ahold and Delhaize did in 2016, he said.

"We don't think Ahold Delhaize's method would be to bid for US assets giving a big bid premium to the asset being bought," he wrote. "For this to work the desire to merge will have to come from both sides."

The Ahold-Delhaize deal might also form a deal with Kroger in another way: Ahold executives have indicated that they are still focused on making sure the combined company is functioning properly, meaning investors might have to wait for a Kroger merger to materialize. Monteyne wrote that a deal with Kroger looks "practically better in 2-3 years' time."

A combined company could realize about $1.8 billion in savings, according to Monteyne. Ahold e-commerce capabilities could be valuable to Kroger as it attempts to compete against Amazon.com Inc.-owned Whole Foods Market Inc., he added.

Ahold has a market capitalization of €19.77 billion, or roughly $23.33 billion, while Kroger's capitalization totals $18.29 billion, according to S&P Capital IQ.

The prospect of an Ahold-Kroger deal is not new. In June, investors considered that the two companies might strike a deal, forming a company that would roughly rival Wal-Mart Stores Inc.'s grocery business in size.

Kroger's stock is down more than 40% so far in 2017. The company's shares took a hit June 16, the day that Amazon announced its plans to buy Whole Foods.

Since then, analysts have been debating what the consequences of that deal will be for Kroger and other U.S. grocers.