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Despite the impending fire sale, Royal Ahold’s ICA venture is unlikely to be relinquished.

Scandinavian retail joint venture ICA is one of Ahold’s most prized acquisitions from its 1990s international shopping spree and represents one of its strongest and most sophisticated store networks in Europe. ICA is present in Sweden, Norway, Denmark, and the Baltic republics and its sales growth in 2002 outperformed many of Ahold’s other divisions. For Ahold, ICA is therefore of substantial value in terms of sales volume and pan- European credentials.

Despite these attributes, ICA constitutes something of a poisoned financial chalice. It potentially threatens more trouble for Ahold’s balance sheet next year, as the agreement signed in April 2000 states that all involved parties have the right to sell their shares after April 2004. If ICA decides to sell shares in its joint venture with Ahold, it is first required to offer the shares to Ahold. Should the Scandinavian partners fail to reach agreement, Ahold is obliged to purchase the shares at a price reflecting the market value of ICA. This would put Ahold again into the position of having to raise a rather large sum of money to buy the shares, precisely the sort of transaction that has contributed to its current malaise: hefty acquisitions with borrowed money.

Still, Ahold is unlikely to sell its stake in ICA at present while there are other possessions to sell off first. For the same reason that the company is unlikely to dispose of its US chains like Tops, there seems little point in selling the crown jewels while there’s some family silver left to raise some cash. Given the worth of ICA to Ahold, the company would have to be hard-pressed by debtors and devoid of other credible options before it considers selling it.

We can expect the South American and South-East Asian operations to go overboard as soon as a half decent price is offered for them. While the potential problems of April 2004 do not provide Ahold with an easy decision, it seems more likely that Ahold will adopt a wait-and-see approach. If ICA is sold before then, the fat lady has finished clearing her throat and is about to sing.
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