Royal Ahold to pay $10 million to settle probe

Giant Food parent admits offenses on joint ventures

October 01, 2004|By BLOOMBERG NEWS

AMSTERDAM, Netherlands - Royal Ahold NV, the food retailer that owns the Landover, Md.-based Giant Food Inc. chain, agreed yesterday to pay 8 million euros ($10 million) to settle an investigation by the Dutch public prosecutor after acknowledging improperly consolidating joint ventures.

The offenses also included publishing inaccurate balance sheets, misleading the public when selling securities, falsifying letters of representation as well as 20-F documents submitted to the U.S. Securities and Exchange Commission, and deceiving accountants, the prosecutor's office said. The fine is the highest that could be levied in a court proceeding.

Ahold, based in Zaandam, Netherlands, said in February last year that it overstated profit and sales for three years. The grocer also is the subject of investigations by the SEC and the U.S. attorney in Manhattan, in addition to two investor lawsuits. The Dutch prosecutor's office started its investigation in July last year.

The fine "is negligible on their profit-and-loss account," said Oscar Poos, an analyst at Fortis Bank in Amsterdam. "It's one procedure out of the way, so there's more time for management to focus on the rest of the business. There's plenty to do."

Chief Executive Officer Anders Moberg wants to raise 2.5 billion euros by selling assets from the United States to Spain to pay down debt. The company said last week that it plans to sell Deli XL, a Dutch and Belgian food distributor, as it concentrates on food retailing in the Netherlands, where it runs the Albert Heijn chain.

Shares of Ahold, which also owns Stop & Shop supermarkets, Internet grocer Peapod and Columbia-based U.S. Foodservice in the United States, dropped 4 cents to 5.14 euros in Amsterdam, erasing a gain of as much as 1.7 percent. The decline cut the company's market value to 7.98 billion euros. Ahold's U.S. shares lost a penny to $6.39 yesterday.

Spokesman Walter Samuels declined to comment on when Ahold, the world's third-biggest retailer, would pay the fine.

The prosecutor's office said Ahold admitted improper use of side letters - supplementary written agreements accompanying some of its joint-venture contracts. The company also said it should not have fully consolidated its ventures with partners in countries including Brazil and Sweden while conflicting side letters existed, according to the prosecutor's office.

Ahold said last year that it overstated profit by 970 million euros and inflated sales in the previous three years. Most of the earnings inflation took place at its U.S. Foodservice food-distribution unit. The company improperly booked revenue from joint ventures such as ICA in Sweden by claiming it entirely controlled those businesses.

Former Chief Executive Officer Cees van der Hoeven, who was ousted when the company disclosed the profit inflation, has been summoned to appear in a Dutch court next month in an investigation of the fraud, his spokesman said Wednesday.

Van der Hoeven called accusations by the prosecutors "ungrounded."

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