- The Washington Times - Friday, November 7, 2003

From combined dispatches

Troubled Dutch food retailer Royal Ahold NV said yesterday it will combine some management functions at Giant Food Inc. and Stop & Shop.

Some administrative and managerial functions will be combined at the two chains, Royal Ahold, based in Zaandam, Netherlands, said in a statement last night.

Giant Food, based in Landover, is the Washington-Baltimore area’s largest grocer with 194 stores and 40 percent of the local market. Stop & Shop operates 341 stores and is headquartered in Quincy, Mass.

Final plans will be announced next year, said Barry Scher, a spokesman for the company in Chantilly.

Giant was founded in 1937 as a family-owned business, when Nehemiah Cohen and Jacob Lehrman opened their first store on Georgia Avenue in Northwest. Israel “Izzy” Cohen, Nehemiah’s son, was the key figure in expanding the chain. J. Sainsbury PLC bought the Lehrman family stake in 1994. And after Izzy Cohen died in 1995, a management group that included his sister and four Giant executives gained control of his half of Giant’s voting stock and four of seven board seats.

Since Ahold acquired Giant in 1998, the company has grown from 177 stores to 194 stores in Maryland, Virginia, Washington, Delaware and New Jersey. It has sales of $5.5 billion — 30 percent growth from five years ago.

Earlier yesterday, Ahold announced other sweeping steps to restore its financial stability, nine months after it was engulfed in an accounting scandal that threatened to bankrupt the company.

Royal Ahold Chief Executive Anders Moberg is attempting to trim the company’s $12.5 billion of debt enough for the company to regain its investment-grade credit rating by the end of 2005. The company owns or has interests in about 9,000 markets and stores.

The world’s third largest retailer also reported it returned to profitability in the first half of this year in contrast to a loss a year ago.

The retailer will issue $2.86 billion worth of new shares and sell its Spanish stores and other unnamed operations in a bid to reduce its $13.7 billion debt.

The company said it plans to restore its U.S. Foodservice unit, based in Columbia, Md. — where fraudulent accounting led Ahold to overstate earnings by more than $1 billion in 2000-2002 — to financial health.

The Dutch company has operated under a cloud since it shocked financial markets by admitting accounting irregularities in February, drawing comparisons to the bookkeeping scandal at Enron in the United States.

The company’s top executives resigned immediately, and U.S. and Dutch regulators started investigations into the company’s accounting practices. Last month Ahold posted audited results for 2002 — seven months late. It lost $5.01 billion for the year under U.S. accounting rules.

Mr. Moberg said his company “has been through the most challenging nine months in its history,” but the refinancing plan would allow it to “focus wholeheartedly on strengthening the competitiveness of our business.”

Ahold also published its first-half earnings, its first earnings update since the scandal broke. It earned $68.6 million in the January-June period, compared to a loss of more than twice that amount a year ago. Sales fell 11.8 percent.

Third-quarter earnings will be released Nov. 26, with details of its share issue.

Analysts said the company’s restructuring measures, if successful, would likely be enough to put it on a solid footing.

“Operationally, things weren’t as bad as they could have been,” said analyst Han van Lamoen of Friesland Bank in Amsterdam. “As for the long-awaited update on corporate strategy, Ahold didn’t have much of a choice but to issue shares.”

Bear Stearns analyst Jens Jantzen said first-half earnings were worse than expected, but that after the share issue Ahold can “return to actually taking care of its operational business.”

The company’s shares closed 1.8 percent higher on the Euronext stock exchange in Amsterdam.

Ahold said the fall in first-half sales was mostly due to the weak dollar as more than half of its sales come from the United States, where it also operates the grocery chains Tops and Bruno’s.

Ahold said that excluding currency effects, its sales would have risen 3.2 percent at its U.S. grocery stores and 1.7 percent in Europe.

Sales at its U.S. Foodservice subsidiary, which sells bulk food to cafeterias, slipped 0.7 percent to $9.43 billion in the first half as the unit lost $52 million vs. a profit of $209 million a year earlier.

“U.S. Foodservice is an under-managed business, but it has a great market position and great potential to improve its financial performance,” Mr. Moberg said.

Foodservice’s profitability slipped as suppliers took advantage of Ahold’s troubles to raise prices and demand faster payment, and as larger competitor Sysco Corp. took away business.

But Mr. Moberg said now that the company is regaining its financial footing, it will be able to use its size to demand better terms from suppliers.

Analyst Van Lamoen said Ahold’s comments were “encouraging” and that he will reconsider his sell rating on shares.

Ahold is the third-largest retailer in the world after Wal-Mart Stores Inc. and France’s Carrefour SA.

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