U.S. Foodservice sold for $7.2 billion

2 private equity firms to buy Columbia company from Dutch parent

Royal Ahold sells U.S. Foodservice

May 03, 2007|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Dutch food conglomerate Royal Ahold NV said yesterday that it has signed a $7.2 billion deal with two private equity firms that would end its seven-year stewardship of U.S. Foodservice, the Columbia food distributor that nearly bankrupted Ahold with a nearly $1 billion accounting scandal.

Analysts said the sale could open the way for Ahold to sell its U.S. supermarket chains, including Giant Food of Landover.

Ahold expects to close on the transaction with Clayton, Dubilier & Rice and Kohlberg Kravis Roberts & Co. in the second half of the year. It will ask for shareholder approval at a special meeting June 19. The price was more than analysts expected and is double the $3.6 billion in cash and debt Ahold paid for U.S. Foodservice in 2000.

FOR THE RECORD - An article and headline in Thursday?s Sun incor rectly reported the price of a deal to sell Colum? bia-based U.S. Foodservice. The price was $7.1 bil? lion.

Ahold's U.S. shares gained 92 cents on the New York Stock Exchange to close at $13.65 yesterday, the highest in more than four years.

It was unclear yesterday what plans the equity firms have for U.S. Foodservice. A spokesman said no one was available for comment, but a joint statement from the firms indicated the management team would remain. U.S. Foodservice employs more than 27,000, including 500 in Columbia.

"We and our partners at CD&R look forward to working with the company's management team, which has done an excellent job of refocusing the business in recent years, to continue executing the strategic initiatives in place," Michael M. Calbert, a KKR member, said in the statement.

Ahold, based in the Netherlands, didn't return several phone calls yesterday. In a statement, Anders C. Moberg, Ahold president and chief executive officer, called the deal an "important milestone for U.S. Foodservice, for Ahold and for our shareholders."

" ... The agreement we have been able to reach with CD&R and KKR is the result of the hard work and dedication of everyone at U.S. Foodservice," said Moberg, who announced last week that he would leave Ahold in July.

U.S. Foodservice, the nation's No. 2 food service distributor, has been a source of angst for its Dutch parent.

The accounting irregularities at the Columbia unit, which surfaced in 2003, plunged the company into crisis, tanking its stock price and prompting the resignations of its top two executives. Ahold was forced to restate profits, undergo major restructuring and pay shareholders more than $1 billion in damages.

Ahold said U.S. Foodservice's profit had been exaggerated by $880 million over three years. The Columbia firm's founder and chief executive, James L. Miller, was ousted, and four other executives and more than a dozen vendors were convicted of criminal charges.

Ahold management has since turned the company around, and it is now one of its most profitable divisions with $19.2 billion in sales.

Ahold announced in November that it was putting U.S. Foodservice on the auction block. It said a sale would help Ahold focus on its core grocery business, particularly in the United States where sales have sagged.

In addition to Giant-Landover, Ahold owns Massachusetts-based Stop & Shop; Giant-Carlisle; Tops, in parts of New York, Pennsylvania and Ohio; and Internet grocer Peapod.

Ahold has faced pressure from shareholders to sell its ailing U.S. businesses, but Ahold has resisted. Analysts said yesterday's announcement will free the company to focus on its other U.S. operations.

"It focuses the attention on what to do with retail properties here in the U.S.," said Bill Bishop, founder of Willard Bishop, a food and retail consultant.

Ahold is already in the process of selling its Tops supermarket chain.

Jeffrey W. Metzger, publisher of Food World and Food Trade News in Columbia, speculated that Ahold would eventually put its three remaining supermarket chains on the market to boost shareholder value.

He said he wouldn't be surprised to hear about such a decision in the next 12 to 18 months.

"There are three large, U.S. supermarket chains doing $20 billion in annual sales with tremendous locations from New England to Northern Virginia, and these are valuable properties," Metzger said.

"They're running it as though they will continue to run it ... but my opinion is you'll see the sale option of these three large profitable U.S. supermarket chains become more of a priority, and Giant would be part of all of that."

Equity analyst Steve West, who covers market leader Sysco Corp. for A.G. Edwards & Sons Inc. in St. Louis said he was surprised by the price. He said the premium sale price will likely slow acquisitions of other distributors.

"All the guys out there up for sale will want the same multiple, too," West said.

Clayton, Dubilier and Rice has investments in 39 U.S. and European companies and is the owner of the Brakes Group, a large food distributor in the United Kingdom. It also once owned Alliant Exchange Inc., a food distribution company that was bought by U.S. Foodservice in 2001.

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