THE PASSPORT to the Giant Food kingdom is not the $2.6 billion Royal Ahold NV will pay for the supermarket company's Class A stock. It's not even the $100 million Ahold needs to buy other shares controlling four of nine Giant directors seats.
The Giant passkey is a white, signed document sandwiched in a locked file drawer in Landover. The certificate, held lovingly and tightly for two decades by Israel Cohen, holds the power of five Giant directors seats.
That's a board majority. Rule of the ranch.
The other Giant paper goes by the name of stock, but without votes it's really just junior bonds with a crummy 2 percent coupon.
Ahold will pay all of $5.4 million for the crucial, controlling certificate. That's a curiously tiny price, and it says something about the way "Izzy" Cohen ran Giant for all those years, something that will now be lost as the paper changes possession.
The market price for Cohen's five-seat, controlling stake is at least $100 million and probably more, financial analysts say. But in one of his endearing peculiarities, Cohen insisted that the voting stock be treated the same as the Class A, nonvoting stock.
He died in 1995. "Throughout his tenure with Giant, Izzy always directed all of us to deal with the nonvoting public shares as if they had a vote," said David Rutstein, Giant's general counsel. "And he made very clear in his will, and repeatedly, that he wanted his family, or ultimately the owners of the [voting] shares, not to be treated in any special way."
The result is that buyer Ahold will pay $43.50 apiece for both Cohen's potent voting shares and the numerous nonvoting shares.
We can figure that Cohen's gesture sucks $95 million out of his estate and adds almost $2 a share to the Class A price received by widows, orphans and mutual funds. (His heirs will do fine anyway, since the estate sold 2 million A shares for $31 apiece a couple years ago.)
That's not how they teach you to do it in Tycoon 101.
But Cohen, who was 83 when he died, steered Giant in several directions that diverged from modern doctrine.
He paid employees more than he needed to and got along well with the Teamsters and the United Food and Commercial Workers unions. His company probably gives more to charity than is required for goodwill and marketing.
And in this heyday of downsizing, outsourcing and "core competencies," Giant is amazingly multitalented and vertically integrated. It's its own wholesaler. It does its own advertising. It makes its own store fixtures. It even has its own construction company for stores.
Cohen could spurn convention because he ran the place with iron control, thanks to that piece of paper in his lawyer's cabinet. Although Giant's stock has floated on the public market for years, until 1995 it was still a family company, shielded by Izzy's embrace from Wall Street's rougher blows.
Even before Ahold showed up, stress was building at Giant. "This isn't the same company," a night supervisor said on the phone last week. The coloring event of the post-Izzy era was an ugly trucking strike that hobbled Giant right before Christmas 1996 and from which it hasn't recovered.
Ahold USA's Robert Zwartendijk is no Izzy. Ahold is a respected corporation, based in the Netherlands, but lower profits in the name of paternalism is not something it is interested in.
It seeks "efficiencies," perhaps combining Giant's computer functions, private-label product factories and warehouse service with those of other Ahold chains up and down the East Coast. Or farming jobs to independent, outside vendors.
Allan Noddle, boss of Ahold USA's support services division in Atlanta, told an audience of supermarket executives last month that they ought to consider outsourcing. "Get ready" for competition, he said to the group. "Because whatever your world is now, it's going to be tougher, leaner and meaner."
It's "business as usual" under Ahold, Giant executives are saying.
But this is 1998. Shareholders have sacred rights to bigger profits and proportional corporate governance -- as demonstrated by the defeat of Marriott International's two-class stock proposal last week.
The day of the family-run, billion-dollar corporation is gone. And so is Izzy.
Pub Date: 5/24/98