Dutch shareholders of Royal Ahold NV, the world's third-largest retailer, have succeeded in forcing a new inquiry into its previous management, including practices that led to the accounting fraud at the food conglomerate's Columbia subsidiary, the company disclosed yesterday.
A Dutch court ordered the review in response to a February 2004 request from the VEB, a small shareholder advocacy group that represents Dutch investors.
Among other things, the Enterprise Chamber in Amsterdam ordered three court-appointed investigators to examine circumstances surrounding Ahold's 2000 purchase of U.S. Foodservice, the Columbia company at the center of an accounting fraud that forced the company to restate earnings by $1.2 billion for 2000-2002.
Ahold's stock fell more than 60 percent in the weeks after the scandal was revealed in February 2003. It also sparked a string of inquiries into the company, which is based in Zaandam, Netherlands.
The purpose of the latest inquiry is not to seek damages, but to answer questions raised by the investors, although analysts anticipate shareholders will use the information to bolster pending class action suits.
The company faces suits from shareholders in both the Netherlands and the United States.
Analysts said they don't expect any new revelations that could further damage the company, which has implemented new internal controls to prevent future problems and has been aggressively selling assets to reduce debt.
"To say this is bad for them is a bit too much, I think," said Johan van den Hooven, an analyst with Bank Oyens & Van Eeghen. "The negative thing is that uncertainty about the outcome will last a couple of months longer."
In addition to U.S. Foodservice, Ahold owns Giant Food Inc., the largest grocer in the Baltimore-Washington metropolitan area. Ahold's U.S. shares rose 2 cents to $7.87 per share in trading yesterday.
Company officials said the inquiry will likely mirror previous investigations by the Dutch public prosecutor and the Securities and Exchange Commission.
Those investigations showed that executives at the Columbia company - the nation's No. 2 food service provider - had improperly booked hundreds of millions of dollars in volume rebates and promotional allowances that manufacturers pay to distributors in exchange for shelf space.
"We have kilometers of documents available for them," said Walter Samuels, a spokesman for Ahold. "We feel confident the investigators will come up with the same conclusions as the SEC and all of those other authorities which have already determined the facts."
Ahold reached a $10-million settlement with Dutch prosecutors last year. The company cooperated with the SEC and avoided paying a penalty as part of a settlement reached in October.
In separate cases, the SEC barred former Ahold chief executive Cees van der Hoeven and former Chief Financial Officer A. Michiel Meurs from serving as officers or directors with any public company in the United States.
Ahold also removed 39 executives and managers and disciplined 60 others after the scandal at U.S. Foodservice.
Samuels said Ahold would have preferred to reach a settlement with VEB, but that door is now closed until the inquiry is completed.
The investigation is expected to take about six months. In addition to probing whether Ahold officials conducted adequate due diligence before the purchase of U.S. Foodservice, investigators will look at how Ahold accounted for earnings from joint ventures in which it did not have a controlling stake. The court rejected seven other lines of inquiry raised by VEB, the company said.
"On the whole, we can say we are fairly satisfied with this outcome," Samuels said.