As U.S. authorities in Maryland and New York intensified an investigation into accounting irregularities at Columbia-based U.S. Foodservice, the company's Dutch parent announced yesterday that a probe into potentially illegal transactions at its Disco unit in Argentina revealed nothing that will affect earnings.
Royal Ahold NV, which also owns Giant Food Inc. and several other East Coast grocery chains, announced Monday that it had overstated earnings at its U.S. Foodservice unit by at least $500 million in 2001 and 2002, sending its shares plunging and resulting in the resignations of Ahold's top two executives.
The world's third-largest retailer faces a flurry of lawsuits and investigations in the United States. Federal prosecutors and FBI officials in Maryland and the District of Columbia held talks yesterday to see who would take the lead in an investigation at U.S. Foodservice, a federal law enforcement source said. It's possible the investigation will be consolidated in Maryland, where U.S. Foodservice is headquartered, the source said. A spokesman for the FBI would not confirm or deny that the Maryland office was involved in the investigation.
In addition to U.S. Foodservice, the company said Monday it was investigating whether its Argentina subsidiary had engaged in unspecified illegal transactions, a revelation that contributed to investor panic.
"This work has now been concluded and the investigation shows that there will be no material impact on Ahold's financial results," the company said in a statement.
The news sent the company's U.S. shares up 99 cents, or 33 percent, to $4.10 per share. The stock fell more than 60 percent earlier this week.
Disco's chief executive officer, chief financial officer and two directors have been replaced, the company said. Alfredo Garcia Pye, head of Ahold's Santa Isabel operation in Peru, has been appointed chief executive of the unit, and a team of managers from Ahold's Netherlands headquarters has been sent to oversee operations at the Argentina subsidiary.
At home, the company moved to shore up its supervisory board after its chairman, Henny de Ruiter, took over as Ahold's interim chief executive. Ahold said it will nominate Jan Hommen, vice chairman and chief financial officer of Royal Philips Electronics, to the board at its May 13 meeting in the Hague.
The U.S. Securities and Exchange Commission and U.S. attorney's office in Manhattan have launched investigations since Monday's disclosures. The operator of the Dutch stock exchange also is investigating, along with the public prosecutor's office in Amsterdam. Ahold has said that it is cooperating with investigators in the United States and Europe, but has declined to comment further.
Federal investigators are expected to focus on how U.S. Foodservice accounted for discounts vendors offered in exchange for the food distributor's promise to sell a specified amount of goods. Such "promotional allowances" are common within the industry and can mean the difference between profit and loss for major distributors.
Sources close to the company said U.S. Foodservice executives were under extreme pressure from Ahold to boost their numbers.