Ahold's last hurdle approaching soon - Royal Dutch Ahold

DSN Retailing Today, Oct 27, 2003 by Mike Duff

ZAANDAM, NETHERLANDS -- Royal Dutch Ahold has taken another step from emerging from what seems a state of perpetual crisis by appointing a new ceo for its troubled U.S. Foodservice division. Still, as it looks to finally holding its postponed annual general shareholder's meeting on Nov. 26 in the Netherlands, Ahold still is facing questions from shareholders angry about the pay package offered the recently arrived ceo.

Those shareholders are prepared to file suit if they don't get answers they like.

Dutch shareholders lobby group VEB told Dow Jones Newswires on Oct. 6 said that filing a request at the Amsterdam commercial court for an investigation into the embattled retailer seemed a reasonable step in its dispute with the company, but VEB director Peter Paul de Vries said he wouldn't necessarily take that step. "First of all, we want to see how Ahold's top executives answer our questions at the shareholders meeting Nov. 26," he told Dow Jones.

The shareholders meeting will review the 2002 results Ahold released on Oct. 2. Ahold reported a 1.2 billion euro loss for 2002--1.34 billion euro after preferred dividend outlay--due primarily to large writedowns on its weak-performing Spanish and Argentine operations. Net sales were 62.68 billion euros.

But those results weren't published under U.S. accounting rules. Ahold promised to file under the U.S. rules on Oct. 15 but stumbled again, delaying the action as it went through final checks on the numbers. The company promised to make the filing quickly and investors didn't significantly penalize the stock on Oct. 16, when it hovered around its previous close just above $10.11 and ended the day down a nickel.

On Oct. 17, however, things changed when Ahold announced not only its U.S. GAAP net loss of $4.33 billion euros or $5 billion in U.S. dollars--the discrepancy of the European number being attributable to different methods of booking goodwill numbers--but also warned on 2003 business. Although it didn't provide a dollar figure, the company said increased operating expenses, tougher competition, a soft global economy, refinancing charges, even lawyers' and accountants' fees all would have a material impact on its 2003 results. The word on 2003 gave investors more bad news to chew on, and Ahold share price dropped by 5% to close at $9.56 for the day.

The company may have been drawing on confidence banked when it appointed Lawrence Benjamin as ceo at U.S. Foodservice. Benjamin was ceo of the NutraSweet Co. and previously held executive positions at Stella Foods, Specialty Foods Corp and Kraft Foods. In making the appointment, Ahold ceo Anders Moberg emphasized Benjamin's "reputation for turning around and rebuilding companies in crisis."

At the time of the Benjamin announcement, Ahold made additional moves to demonstrate just how closely it would be watching the reconstitution of U.S. Foodservice financial operations. An advisory board was installed with the responsibility of supervising required changes in controls systems and to ensure the implementation of more stringent corporate governance principles throughout the entire company, Ahold stated. This advisory board consists of Moberg, Ahold cfo Hannu Ryopponen, chief corporate governance counsel Peter Wakkie, corporate executive board member and head of the U.S. retail business William Grize, and supervisory board member Robert Tobin. Two external members with extensive industry and business experience were also planned, according to the company.

Putting Grize on the board may be interpreted as another signal that Ahold remains committed to its U.S. operations and has confidence in the leadership of its retail arm, which includes supermarket chains Stop & Shop, Bruno's, Giant Carlisle, Giant Landover and Bi-Lo. Scandal has touched the U.S. retail business and the leadership of Bi-Lo was shuffled, but, overall, it has retained confidence throughout the long Ahold crisis.

Some of Ahold's European critics have questioned the company's commitment to the United States, which now generates the bulk of Ahold's sales. Particularly, they have questioned retaining the foodservice business but Kathleen Boyle, a SmithBarney analyst, said that such a viewpoint is shortsighted. Going forward, foodservice represents a high-margin business and the best prospect for driving Ahold's share price, she said.

The issue of ceo remuneration is the one shareholders are most anxious for the company to address at its annual meeting. And it's a serious issue. After anger over Moberg's package boiled over, he incentivized his bonuses and dropped a guaranteed severance provision. On Sept. 17, as the changes to Moberg's pay package were circulating, Ahold announced that the company's chairman and the man ultimately responsible for his hiring, Henny de Ruiter, would resign. Karel Vuursteen, former head of Dutch brewer Heineken and an Ahold supervisory board member, replaced de Ruiter as chairman of the supervisory board.

Boyle said shareholder reaction to management's presentation about Moberg's pay and incentives is important. Shareholders groups have more clout in the Netherlands that they do in the United States, and a lawsuit could derail management plans. Only then is it at all likely that Ahold's plans and heavy commitment to U.S. operations might be substantially challenged.