Ahold pledges Giant to gain line of credit


Royal Ahold NV pledged Giant Food Inc. and several other U.S. and Dutch grocery store chains as collateral to secure a critical line of credit from bankers, who remain skeptical of the company's finances in the wake of a $500 million accounting scandal at its Columbia-based U.S. Foodservice unit.

In addition to Landover-based Giant, terms of the $2.91 billion credit agreement give the banks liens on two other Ahold grocery chains in the United States: Stop & Shop Supermarket Co. in Quincy, Mass., and BI-LO LLC in Greenville, S.C. The company's Albert Heijn stores in the Netherlands also are part of the agreement, among other assets.

Analysts said the size of the pledged assets reflects the depth of the company's troubles as it struggles with more than $13 billion in debt combined with a credibility crisis resulting from last week's disclosures about its U.S. Foodservice subsidiary.

"I think the banks are effectively in the driver's seat at the moment," said Alan Beaney, who helps manage $945 million of assets at Principal Investment Management Ltd. in London.

The stores are Ahold's most profitable, making the Dutch food giant the largest grocery store operator on the Eastern Seaboard and a dominant presence in the Netherlands. The U.S. operations account for more than half of the company's sales.

"Stop & Shop and Giant are considered two of the most successful supermarket chains probably in the U.S.," said Mark Hamstra, retail editor of Supermarket News in New York.

Ahold, once the darling of the Amsterdam stock exchange, revealed last week that its U.S. Foodservice unit overstated earnings by at least $500 million after improperly booking vendor discounts.

Ahold is under investigation by the Securities and Exchange Commission and Justice Department, which has subpoenaed a broad range of company records dating to 1999. Dutch authorities also are investigating.

In addition to U.S. Foodservice, the probe will look into the company's method of accounting for several acquisitions.

In a press release yesterday, Ahold said investigators are looking at the company's failure to provide its auditors with information related to its decision to consolidate ICA Ahold and various other joint ventures. Ahold has a stake in ICA Ahold, the No. 1 grocery chain in Scandinavia.

"While no one can predict the future, we are encouraged by the lenders' conclusion to move forward and we remain optimistic about the company's prospects," Henny de Ruiter, Ahold's chairman and interim chief executive, said in a statement yesterday announcing the credit agreement.

Analysts said the additional credit gives the company "breathing space" while the investigations proceed. But the money comes with numerous strings.

Lenders want Ahold to produce audited 2002 financial results for each of the grocery chains put up as collateral before releasing about half of the money. Other conditions include submitting audited results for the company's corporate accounts by June 30.

Deloitte Touche Tohmatsu, Ahold's auditor, suspended its audit of Ahold's books after finding the irregularities revealed last week.

European investors complain that Ahold was too slow in revealing its financial troubles and fear that the company isn't disclosing all of the terms of the new credit agreement.

"It looks like the banks are taking over," said Paul Frentrop, director of the Dutch branch of Deminor, a European shareholder advocacy group. "We want to know all of the terms of the bank facility."

In addition to lining up the bank loan, Ahold has said it plans to sell some assets to pay down its debt, prompting a flurry of speculation about potential bidders.

The chairman of Paris-based Carrefour SA, the world's second-largest retailer after Wal-Mart, expressed interest in buying parts of Ahold.

Kohlberg Kravis Roberts & Co. of New York, the world's largest buyout firm, also has been mentioned as a potential buyer, sources familiar with the situation said.

A spokeswoman for Carrefour was unavailable for comment yesterday, and a spokeswoman for Kohlberg Kravis declined to comment.

"You can understand why people would be interested in Ahold [assets]," said Beaney, the London funds manager. "There's nothing wrong with the underlying business. It's a good, solid cash cow."

Ahold's U.S. shares declined 5 cents yesterday to $3.58. The shares have lost two-thirds of their value since the accounting irregularities were announced.

Bloomberg News contributed to this report.

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