May 14, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF
James L. Miller, founder and chief executive of Columbia-based U.S. Foodservice, was ousted yesterday by parent company Royal Ahold NV nearly three months after the disclosure of an accounting fraud that cost the Dutch supermarket conglomerate $1 billion.
Ahold's supervisory board said it asked Miller to resign based on an internal probe, completed last week, that found U.S. Foodservice inflated profits by $880 million over three years. Miller, 54, also will step down from the corporate executive board at Netherlands-based Ahold, the world's third-biggest retailer that counts Giant Food Inc. among its six U.S. grocery chains.
But the company gave no indication whether it intends to keep U.S. Foodservice, scale it down or sell it to help trim debt.
Analysts yesterday welcomed Miller's departure as a step toward restoring investor confidence.
"People were looking for something like this to happen," said Simon Raggett, a retail analyst at Willams de Broe in London. "Clearly, the CEO is ultimately responsible for the state of controls in the company, even if it seems to be the case that he's not personally involved in doctoring the results."
Robert G. Tobin, a member of Ahold's supervisory board who is a retired chief executive of Ahold USA and a close friend of Miller's, was named as interim head of U.S. Foodservice.
Miller will help Tobin during the transition, the company said.
"This is clearly the changing point for Ahold in terms of their future direction and their culture," said Jeff Metzger, publisher of Columbia-based trade journal Food World.
"When an accounting error of that magnitude happens on your watch, you don't deserve to be chief executive any more."
Analysts said a permanent replacement for Miller will likely come from outside Ahold's ranks, as did Anders Moberg, the former IKEA executive who was appointed Royal Ahold chief executive more than a week ago. Moberg replaced Cees Van der Hoeven, who resigned when Ahold disclosed the accounting fraud Feb. 24.
"That's the sort of thing one would look for, someone with industry background but untainted by scandal to come in from the outside," Raggett said. "There might be good people inside [U.S. Foodservice] but that wouldn't inspire confidence from the outside or among workers."
Ahold announced Miller's resignation shortly before a shareholders meeting yesterday afternoon in The Hague. Chairman Henny de Ruiter presented the management shake-up as the latest step in resolving a crisis that has erased more than 40 percent of shareholders' value.
"February 24 was an all-time low for each and every one of us, and I offer you my sincere apologies," de Ruiter told 361 shareholders representing approximately 235 million common shares in the company's first general meeting since the accounting fraud was disclosed on that date.
"Things will be different," Moberg pledged. "I will restore not only value but also common sense to the company."
In its announcement last week, Ahold said that the profit overstatement, the result of inflating rebates and discounts from suppliers, was 76 percent more than first estimated and occurred over three fiscal years - 2000, 2001 and 2002. The earnings restatements wiped $700 million in assets from U.S. Foodservice's balance sheet as of last Dec. 28 and boosted its liabilities by $290 million, Ahold said.
Ahold fired two U.S. Foodservice senior executives, Mark Kaiser, a Miller protege, and Tim Lee, whom the company blamed for inflating profits. An attorneys for Kaiser did not return phone calls yesterday. Lee's attorney, Jane F. Barrett, said she could not comment.
Statement by Ahold
In a statement yesterday, Ahold reiterated that its internal legal investigation is continuing to look at the possible involvement of U.S. Foodservice employees other than Kaiser and Lee. U.S. Foodservice is also under investigation by the Securities and Exchange Commission and the Justice Department.
The company has not implicated Miller, who is credited with building U.S. Foodservice into the nation's second-largest restaurant and institutional supplier behind industry leader Sysco. In 14 years, Miller transformed U.S. Foodservice from an obscure, $600 million Columbia distributor into a $17.5 billion powerhouse with 28,000 employees. Miller built the business, several business associates have said, by squeezing suppliers, pushing his sales force and methodically plotting out acquisitions, sometimes patiently courting smaller distributors for years.
Miller oversaw the sale of his company for $3.6 billion to Ahold in 2000.
A spokesman for U.S. Foodservice declined comment on Miller's behalf, referring all questions to Ahold's corporate offices in the Netherlands. Officials in the Netherlands did not return phone calls.
Analysts said yesterday that it could take some time for Ahold to determine U.S. Foodservice's fate.
"Once things settle down and the company can be valued properly, will Ahold need that potential asset or the fruits of that asset to pay down debt and focus on their key operations?" including the U.S. supermarket chains, Metzger said.
It may be too soon to tell, he and other analysts said.
`Room to restore profit'
"Fundamentally, it's not a bad business to be in, with only two major players," said Alain du Brusle, an analyst with UBS Warburg in Paris. "There is some restructuring to make, but beyond the current problems ... there's certainly room to restore profit."
Ahold also announced that shareholders extended the term for filing fiscal 2002 financial reports by six months, to November 29.
However, the company has said it expects to complete its audits by June 30, a deadline requirement under a credit facility Ahold announced on Feb. 24.
Shares of Royal Ahold lost 32 cents to $6.66 on the New York Stock Exchange yesterday.
Bloomberg News contributed to this article.
