U.S. Food rift with Ahold is detected

Suggestion that unit isn't to blame for crisis `rejected' by Dutch parent

March 12, 2003|By Robert Little | Robert Little,SUN STAFF

Signs of a trans-Atlantic clash surfaced yesterday between the Dutch grocery giant Royal Ahold NV and its Columbia-based subsidiary, U.S. Foodservice, as the parent company quietly "rejected" a suggestion that the American division is not to blame for its recent corporate crisis.

A spokesman for Royal Ahold also told a British newspaper that the company did not "stand by" the recent claim of U.S. Foodservice chief executive James L. Miller that his operation's accounting troubles did not lead to the resignations of Ahold's top two executives.

Another Ahold spokesman told The Sun that the British report was accurate, and that the company "rejects" Miller's claim.

Accounting irregularities at U.S. Foodservice caused Royal Ahold to announce last month that it has overstated income by at least $500 million. Royal Ahold also said it is investigating possible problems at subsidiaries in South America and Europe, and its chief executive officer and chief financial officer resigned.

In a letter last week to customers and employees, Miller denied any link between the alleged accounting errors at U.S. Foodservice and the management purge at its European parent.

"The press have linked their departures to the situation at USF. In reality, their resignations had nothing to do with our company," Miller wrote. "Their resignations are the result of events that occurred outside the United States."

A spokesman for U.S. Foodservice said yesterday that the company would not comment, but that "the letter speaks for itself."

In a statement to the Financial Times of London, however, a Royal Ahold spokesman said "Mr. Miller's business is under investigation ... [Ahold] cannot stand by what he said."

U.S. Foodservice and Royal Ahold have enlisted separate public relations firms to manage the accounting crisis for them, and executives at the two companies did not return telephone calls yesterday.

Miller's letter also was disputed yesterday by the accounting firm Deloitte & Touche, whose Dutch branch audited and certified the accounts of Royal Ahold. The firm announced earlier this month that it no longer stands behind its audit reports from 2000 and 2001.

"Throughout its service to our company, Deloitte & Touche's auditors repeatedly assured me and other senior managers that our accounts were in proper order," Miller wrote. "Sadly, those assurances turned out not to be true."

But Deloitte & Touche spokeswoman Deborah Harrington said the firm never worked specifically for U.S. Foodservice.

"We did not audit U.S. Foodservice in the way that one normally considers an audit - we performed procedures on it as part of the audit of its parent company," Harrington said. "Keep in mind that it was Deloitte that actually discovered the problems at U.S. Foodservice, as part of its 2002 audit of Royal Ahold."

The accounting troubles at U.S. Foodservice are being investigated by the Justice Department, the Securities and Exchange Commission and Dutch regulators. They are also the subject of several class action lawsuits filed on behalf of investors in Royal Ahold, whose stock price has plunged more than 70 percent.

Miller said in his letter that the problems were caused by "a few trusted employees [who] worked outside our accepted accounting procedures."

A former company executive told The Sun this week, however, that the controversial accounting methods were used several years before the current crisis materialized.

Also yesterday, Royal Ahold announced that a former executive with the Dutch company Royal Philips Electronics will serve as interim chief financial officer, perhaps until the end of the year. Dudley Eustace, formerly director of finance at Philips, said in a statement that he has been hired to "stabilize the financial fundamentals" of Royal Ahold and help recruit a permanent CFO.

The Royal Ahold executives who resigned last month, CFO Michiel Meurs and CEO Cees van der Hoeven, both stayed on "to effect an orderly transition of affairs."

But Royal Ahold declared the transitional period ended yesterday and said the men have now left the company.

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