Delhaize: € 400m bond issue

Delhaize announced that is has completed the pricing of € 400m of Senior Fixed Rate Bonds due 2020, at an annual coupon of 3.125%, to be issued at 99.709% of their principal amount. The net proceeds will be used in part to fund the repurchase of Euro Notes and Dollar Notes due 2014.

The offering of the new bonds is being made to qualified investors and will be listed on NYSE Euronext Brussels. The new bonds are expected to be issued on 27 November 2012.
The new bonds will contain a change of control provision allowing holders to require Delhaize Group to repurchase the new bonds at 101% of their aggregate principal amount in certain circumstances, as approved by the general meeting of shareholders dated 24 May 2012.

A prospectus for the admission of the new bonds on NYSE Euronext Brussels will be available on the website of the NYSE Euronext Brussels.

Our View:
Many companies have issued bonds recently to take advantage of the attractive interest rates that currently prevail. Delhaize uses the opportunity to repurchase Notes that mature in 2014. At the end of 2011 the carrying value of long-term debt maturing in 2014 included € 541m related to Notes (5.625% nominal interest rate) denominated in € and € 231m related to Notes (5.875% interest rate) denominated in $ . The operation will result in a better spread of the maturities.

The investment case remains unchanged. We maintain our BUY rating even though the group continues to face seriouschallenges. The current share price implies an EBIT margin of 2.5% to calculate the terminal value in the DCF model and the market cap currently stands at 50% of shareholders’ equity (€ 5.4bn). The stock is currently trading at 5.4x its targeted free cashflow for this year. Extremely low valuation multiples could attract predators. The group is an attractive prey given its strong balance sheet, strong brands and cash flow generation power.