Ahold names chief of ailing distributor

NutraSweet executive to run U.S. Foodservice

Accounts scandal cost $1.1 billion

Parent seeks turnaround for Columbia business

October 15, 2003|By Paul Adams | Paul Adams,SUN STAFF

Dutch food retailer Royal Ahold NV has hired NutraSweet Chief Executive Officer Lawrence S. Benjamin to lead the turnaround effort at U.S. Foodservice, the Columbia food distributor that cost the parent company $1.1 billion in an accounting scandal.

The appointment of Benjamin as chief executive is Ahold's latest attempt to restore credibility to the business. In May, it began a detailed internal audit of the company's books and ousted Jim Miller as chief executive.

Shares of the world's third-largest retailer lost more than 60 percent of their value after it was revealed in February that U.S. Foodservice had improperly booked customer rebates and overstated earnings for three years.

In naming a successor to Miller, Ahold bypassed food-distribution industry veterans in favor of Benjamin, whose resume includes turning around several smaller food companies before taking the helm at NutraSweet, a leading producer of artificial sweeteners.

The executive, who will take over Nov. 1, will be leaving a company with about 500 employees to lead one with 34,000 employees and more than $19 billion in annual revenue.

Last month, Ahold, which reported a $1.4 billion loss for last year, temporarily ended speculation that it might sell U.S. Foodservice, saying such a move would "create a massive destruction of shareholder value."

Analysts say Benjamin will inherit a company that is struggling to revamp its accounting practices and overcome major structural problems.

"He's never run a company of that size and certainly never been involved in any situation with [the magnitude] of those kinds of problems," said Robert S. Goldin, executive vice president of Chicago-based Technomic, a food industry research and consulting firm. "[The appointment] is a bit of a surprise in terms of his background, but, you know, that's not necessarily a bad thing."

Benjamin was not available to be interviewed yesterday.

"Recently, the focus of U.S. Foodservice has necessarily been on cleaning up the business," Anders Moberg, Ahold's president and chief executive, said in a statement announcing the appointment. "Larry's leadership and background perfectly complement our strategy for U.S. Foodservice."

Described by former colleagues as a consensus builder who is accustomed to difficult situations, Benjamin spent eight years at Kraft Foods, helping to lead the company's $2.5 billion frozen foods division and turning around its failing $300 million gourmet frozen meals business.

He left Kraft in 1994 to join Oak Hill Capital Management, a $1.6 billion private equity firm with stakes in several branded food companies. Benjamin is credited with restructuring Stella Foods, a struggling cheese producer, and Specialty Foods Corp., which makes specialty baked goods.

"We looked around for other companies to buy with him before he joined NutraSweet," said J. Taylor Crandall, managing partner at Oak Hill. "So we had a very high opinion of his abilities and were prepared to put capital behind him again."

Jay M. Goffman, an attorney whose firm was hired by Oak Hill to help turn around Specialty Foods, called Benjamin an innovator who won the trust of lenders and bondholders during the company's restructuring.

"The people that worked with him and surrounded him were extremely loyal to him, and I think that had to do with his management style," he said.

Analysts say there are vast differences between the food companies Benjamin previously led and U.S. Foodservice, the nation's second-largest distributor of food to restaurants, hospitals and schools.

Benjamin's expertise as a turnaround specialist probably landed him the job.

"Experience in starting from a situation that is a little unsettled and then stabilizing it and ... turning it around is basically what he brings to the table," said Amira Rashad, vice president of Valen Group in Cincinnati, a strategy consultant for the retail and food industries.

Ahold will spend the next two years trying to rebuild U.S. Foodservice, which it purchased for $3.6 billion in April 2000. The company said this month that it will write down its assets by $3.8 billion, including $3.2 billion for U.S. Foodservice.

Dutch prosecutors and the U.S. Securities and Exchange Commission are investigating the company's accounting practices. Meanwhile, Moberg has been selling off parts of the company to pay down debt.

Ahold said yesterday that it plans to install an advisory board at U.S. Foodservice to remake its accounting control systems and "implement solid corporate governance principals" throughout the company.

Analysts said Benjamin appears to have the background needed to do the job, despite having no experience with food distribution.

Benjamin "needs to be more focused on making sure he has the right organizational structure and processes in place to make sure that what happened with U.S. Foodservice will not happen again," Rashad said.

Ahold's U.S. shares closed down a penny yesterday at $10.24.

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