Ahold silence works against its stock value

A $500 Million Mistake

February 26, 2003|By Jay Hancock

ROYAL Ahold NV claims to offer "straight talk" to investors. But since a huge accounting scandal broke two days ago, the company has put up a serpentine stonewall.

Already cast into the financial pit because its books are bogus, Ahold has refused to reveal details of its self-investigation and workout plan that are basic to the calculation of its prospects.

Who, analysts wanted to know Monday, are the lenders who agreed to refinance $3.3 billion for Ahold so it won't default on its bond covenants?

No comment. (Yesterday, Bloomberg News identified them as Goldman Sachs, J.P. Morgan and three Dutch banks.)

Which Ahold divisions are being used as collateral for the new loans?

No comment.

Which Ahold divisions have the lenders demanded be audited?

No comment.

Can you at least disclose how much of the company's cash flow is represented by the units that are backing the new loans? Or tell us the interest rate on the new debt? Nope and nope.

What new facts emerged to cause Ahold to remove some results of three partially owned affiliates from its consolidated statements - a move that will reduce reported sales (but not earnings) by millions?

Won't say.

How much profit did those divisions generate?

Won't say.

Which of its companies around the world is Ahold contemplating selling off to raise cash?

None of your business.

The low point in Ahold's Monday afternoon conference call came when a too-polite analyst asked whether mediocre results at some of Ahold's New York grocery stores might cause the company to rethink its American retail strategy.

"I don't think this is the time or the place to discuss sales trends in New York," was the huffy reply from Ahold investor-relations spokesman James Dausch.

OK, pal. If that's how you feel, here's what to do with your stock.

Monday's bravura performance by Ahold bosses helped the company's U.S.-listed shares fall 61 percent that day, from $10.69 to $4.16.

After sleeping on it and waking up yesterday, however, investors reassessed their view of Ahold. They decided to pound it some more, pushing the stock down 17 percent to $3.44.

U.S. grocery revenue might seem irrelevant for a $65 billion company that had just announced that its Columbia-based U.S. Foodservice division overstated last year's profits by some $500 million.

But when that kind of revision takes place, everything becomes relevant. All that the corporation has represented to be true in the past becomes suspect and requires verification and new analysis.

Companies don't normally blab publicly about negotiations with lenders or about which divisions might be sold off.

But this is not normal.

Ahold's value has shrunk by more than $6 billion this week and more than $20 billion since 1999. Both the chief executive and the chief financial officers have resigned. The remaining management is losing control of the situation.

It's not business as usual, folks, and the usual business of prissy, selective disclosure is not going to cut it.

Of course, any inquiry into ersatz profits will be fraught with unknowables in its early days - although it is unclear how long Ahold has been aware of the problems that it disclosed Monday.

U.S. Foodservice doesn't know the exact size of the overstatement or how much of the problem stems from nonexistent earnings and how much results from genuine profits being recorded in the wrong period.

Finding truth in a pile of accounting junk is not a one-week job.

But that's a good reason for Ahold to offer artery-opening revelation on the information it does have, about lending negotiations, the accounting investigation, restructuring options, subsidiary performance and new problems with its Argentine operations.

Wall Street operates on the theory that financial information is quickly absorbed and processed by markets and then spit out in the form of changing securities prices. But sometimes a lack of information becomes the most important piece of data of all. There's only one way to respond, and it's not with a "buy" order.

Henny de Ruiter, Ahold's nonexecutive chairman, ended Monday's conference call by stating: "The only thing I want to say is that we are determined to do the right thing here."

For Royal Ahold, the right thing includes fixing its royal credibility problem.

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