Royal Ahold to Sell U.S. Foodservice Unit

Despite problems with the merger of Giant Food and Stop &  Shop two years ago, Royal Ahold plans to keep both chains and make them more profitable.
Despite problems with the merger of Giant Food and Stop & Shop two years ago, Royal Ahold plans to keep both chains and make them more profitable. (By J.b. Reed -- Bloomberg News)
By Ylan Q. Mui
Washington Post Staff Writer
Tuesday, November 7, 2006

Dutch conglomerate Royal Ahold NV said yesterday that it will shed its Columbia-based U.S. Foodservice division but attempt to reinvigorate local supermarket chain Giant Food.

Ahold chief executive Anders Moberg said the sale of the food distribution division that was embroiled in financial scandal three years ago will allow the company to focus on strengthening its core retail business. He would not give a timeline for the sale but indicated there was significant interest in the operation, which delivers food to hotels and cafeterias. Industry analysts have estimated it could be worth $5.1 billion to $5.7 billion.

For Giant, the announcement was a reprieve of sorts. Ahold has been under pressure from impatient investors to dump all of its American operations, which have been beset by weak sales and increasingly intense competition. Analysts have long speculated that the company eventually would be taken over or broken up if it could not turn itself around. But after a months-long internal review of the company's portfolio, Ahold executives indicated yesterday that they would dig in their heels -- at least for now -- and focus on cutting costs and lowering prices at Giant stores.

"We have come a long way," Moberg said in a news conference at Ahold headquarters in Amsterdam. "The company is moving in the right direction. [Retail] is where we will continue our growth in the future."

Ahold also said it will sell its Tops grocery stores, which operate in the Northeast as part of the Pennsylvania-based Giant-Carlisle division, as well as chains in Poland and Slovakia. It hopes to reduce operating costs by $636 million by 2009 and reaffirmed its target of 5 percent growth in total sales and operating margins. After the sale, it plans to reduce debt and return $2.5 billion to shareholders, but it did not specify in what form.

Ahold's American operations account for nearly three-fourths of the company's total sales. U.S. Foodservice, its largest division, accounts for 47 percent, employing about 200 people at its headquarters in Columbia and more than 28,000 people at 113 locations across the country. The accounting scandal in 2003 forced Ahold to restate income of more than $800 million after it was revealed that executives had systematically inflated promotional allowances to meet earnings targets.

The legal fallout is only now coming to an end. Ahold settled Securities and Exchange Commission charges without paying a fine two years ago and later agreed to pay $1.1 billion to settle shareholder lawsuits. In September, it entered into a non-prosecution agreement with the U.S. Attorney's office in the Southern District of New York.

Former U.S. Foodservice finance chief Michael J. Resnick pleaded guilty in September to taking part in a conspiracy to inflate earnings and reduce costs using bogus rebate payments. Closing arguments were heard yesterday in the Manhattan criminal trial of the company's onetime marketing guru, Mark P. Kaiser.

At the U.S. Foodservice headquarters, many workers did not have details of the impending sale yesterday morning but expected a meeting with management.

Deirdre Dobbins, 38, who lives in Baltimore and works in the legal department at U.S. Foodservice, said employees had been expecting a drastic change for months.

"We all knew it was coming," she said, "we just didn't know when it was coming."

Lawrence S. Benjamin, who was brought in as chief executive to rebuild the company after the accounting scandal, was named yesterday as head of Ahold's American operations. He said the decision to sell was not related to financial performance but rather Ahold's need to focus on its retail chains.

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