AHOLD SETTLEMENT PROMISES TO BE THE FIRST OF MANY 2004-10-04 (2)

MARK HAMSTRA

ZAANDAM, Netherlands -- Ahold here last week agreed to pay an 8 million euro (about $10 million) fine to settle an investigation by the Dutch public prosecutor into a tactic the company was accused of using to inflate its revenues from international joint ventures.

Analysts said the settlement may be just the tip of the iceberg as the company faces shareholder lawsuits and several other investigations by regulatory bodies into its accounting practices from 2001 to 2003, when Ahold was forced to restate its profits by more than $1 billion.

Also last week, Cees van der Hoeven, the former chief executive officer of the company, said he was facing charges in the Netherlands for his role in the company's accounting scandal, according to reports. Both he and Michael Meurs, Ahold's former chief financial officer, resigned in February 2003 when the company revealed that it had inflated its profits, in large part because of the overstatement of vendor allowances at its U.S. Foodservice subsidiary.

It was not clear what charges were being brought against van der Hoeven and other former executives who were reportedly also summoned to appear on Oct. 13.

In the settlement with Dutch authorities, Ahold said the public prosecutor agreed not to launch proceedings against the company.

Patrick Roquas, analyst, Kempen Securities, Amsterdam, said Ahold stands to pay considerably more as it attempts to resolve its other legal woes, however.

"I would say the biggest exposure is in the U.S., where you have several class-action lawsuits coming up," he told SN. "I would not be surprised if such cases are settled -- for much higher than 8 million euros -- but I cannot give you any indication of whether that will be 50 million or 60 million or 100 million. Anything is possible here."

The settlement Ahold agreed to last week concerned the company's use of "side letters," or agreements it had with its joint-venture partners in Europe and South America concerning control of the joint ventures. According to analysts, Ahold indicated to shareholders and regulators that it had control of the joint ventures, allowing it to recognize the revenues from them; in the side letters with its partners, it agreed to let the partners retain control.

That Ahold was willing to settle the side-letter investigation indicates the direction it is likely to take in the others, according to Roquas.

"I think the general indication is that the management would like to settle most of the cases and prevent a lengthy legal procedure," he said.

Other investigations under way include one by the Securities and Exchange Commission in Washington, which could determine the disposition of a series of class-action shareholder suits in the United States. VEB, an organization representing Dutch shareholders, also said it could seek damages from Ahold based on the results of other investigations by Dutch authorities.