ZAANDAM, Netherlands -- Ahold here last week said its internal forensic accounting investigation uncovered an additional 73 million euros (about $85 million) of intentional accounting irregularities related to acquisition valuations. It also said it had concluded the accounting investigation, which began after the company revealed in February that it had significantly overstated its profits during the past three years.
The final overstatement brought the total of accounting irregularities to $1.1 billion that may require restatements in 2002 and one or more prior years, including $856 million at U.S. Foodservice, down from previous estimates of $880 million and primarily related to improper recording of vendor allowances. Also included was $29 million in profit overstatements at Tops Friendly Markets, Williamsville, N.Y., which also was related to vendor allowances, and $8 million at the company's Disco subsidiary in Argentina, both of which were previously reported.
Analysts said they expected the company to take additional charges for goodwill write-downs and asset revaluations. They said the focus now would be on the operational performance of Ahold's retained assets after it sheds operations in Asia and Latin America to reduce its debt load. They expect it to retain its U.S. retail chains, which include Stop & Shop; Giant-Landover, Md.; Giant-Carlisle, Pa.; Bruno's; Bi-Lo; and Tops.
"I don't think it's necessary at this point for Ahold to sell any of the U.S. [retail] businesses," said Jenz Jentzen, an analyst in the London office of Bear Stearns, although he and other analysts said U.S. Foodservice might be sold.
He said that if Ahold meets its Aug. 15 deadline for reporting its 2002 earnings, it would gain access to $900 million in new financing, which he said should get it through the rest of this year. However, the company has several debt obligations and other payments due next year that could put it under pressure to come up with more cash.
He said Ahold might be able to sell U.S. Foodservice for "a couple of billion" dollars, although he noted, "that might still not be enough."
"The company still needs to find liquidity and refinance itself in the second half of this year," he said.
Didier Rabattu, head of global food retail, Deutsche Bank, London, said he also thinks Ahold will retain its U.S. retail operations and consider selling U.S. Foodservice.
"Stop & Shop is a very good business," he said. "Giant-Landover is a very good business. And who's going to buy Bi-Lo or Bruno's? Nobody wants that."
He also said he thinks Ahold will keep its retailing operations in the Netherlands, Spain and Eastern Europe, although it may sell its minority interest in a Portuguese holding company.
"I think at first they will try to reduce their debt structure, then they will try to find some more room to maneuver in terms of coming back to the bond market," said.
Although the internal investigation into Ahold's accounting is complete, the company still faces legal investigations in several of the countries where it operates.