There are continuing developments in the accounting scandal that has enveloped Ahold, the world’s second largest food retailer. As reported earlier this week, the Netherlands-based retailer revealed accounting irregularities that consisted of an overstatement of revenues in the neighborhood of a half-billion dollars. Its CEO and CFO were forced to resign, and the company is dealing with a myriad of legal issues:
- In addition to the investigation being conducted by the US Securities and Exchange Commission (SEC), the US Attorney’s office in New York has begun a probe into the affair, looking at both Ahold and its US Foodservice subsidiary.
- The Washington Post reports this morning that the “criminal and regulatory investigations are likely to go beyond the specific accounting irregularity that led to the restatement -- how U.S. Foodservice booked rebates from suppliers -- to a broader look at the company's finances.”
- Securities regulators in the Netherlands also have begun an informal inquiry into allegations that there may have been insider trading conducted by executives of the firm.
- The Washington Post also reports this morning that while US Foodservice has suspended Mark P. Kaiser, chief marketing officer, and Tim Lee, a purchasing executive, the subsidiary’s CEO, James L. Miller and CFO, Michael Resnick, have not been suspended.
- Dow Jones reports this morning that a pension fund based in New York has filed a lawsuit against Ahold. It is seeking class action status for the suit.
- The Wall Street Journal reports that regulators in the US are trying to ascertain whether US Foodservice executives deliberately inflated supplier rebates and promotional allowances to the company.
- Dow Jones also reports this morning that the Dutch Foundation for the Investigation of Corporate Information has filed a suit against Cees van der Hoeven, the ousted Ahold CEO, alleging that he may have been an accomplice to embezzlement.
- The New York Times reports this morning that in the Netherlands, skittish Dutch shoppers have been rushing in to Ahold’s Albert Heijn stores to trade in promotional stamps, apparently concerned that the clock is ticking on Ahold’s existence.
- The New York Times also reports this morning that under the terms of an agreement, Ahold may be required to buy out its partners in ICA, the Scandinavian supermarket chain, sometime in 2004, which could cost it the equivalent of close to another half-billion dollars – money it may not have. This raises yet again the specter that Ahold may have to start selling off assets for cash.
- If Ahold does have to sell off assets, there will be no dearth of companies willing to help it out. The Financial Times reports that Tesco executives have said that they would be interested in a number of Ahold units, and Sainsbury also is reported by FT to be a likely bidder.
In addition, FT reports that Kohlberg Kravis Roberts, the US buyout firm that dropped out of the bidding for Safeway Plc in the UK, would be interested in getting in on the Ahold action. - Finally, Ahold reportedly is looking internally for a new CEO to replace van der Hoeven, though it may go outside the company if an appropriate candidate cannot be identified.
- KC's View:
-
Pardon us while we catch our breath…
We want to make sure that amid all the legal and financial issues, the human element in all this is not lost. We remain aghast about the story we had yesterday, saying that because Ahold had created a program that encouraged its employees to buy stock in the company and to borrow money from the company to make those purchases, the freefall being experienced in its stock price means that many of them are now in debt to the company for amounts far less than the value of their shares; in some cases, employees owe Ahold millions of dollars, at least on paper. The loans apparently don’t have to be paid back until 2008, unless the person leaves the company, in which case they have to be repaid immediately.
Think about the Ahold employee, whether in the store or at headquarters, who came to work on Monday morning thinking that he or she had a good, solid job at one of the world’s most respected retailers, and that the future looked good.
First, they found that the leadership had to quit because of “accounting irregularities.” Then they found out that there would be a plethora of legal investigations into virtually every action taken by the company. Then they saw that the stock price was in free fall, and that suddenly they owed the company a small fortune because of a stock purchase that was now almost worthless.
And what does the future hold? Well, conceivably, if this shell-shocked employee gets laid off because Ahold has to cut costs, during the exit interview not only won’t the person be handed a severance check, but he or she could be asked to write one to cover the stock purchase loan.
Whatever happens to Ahold, we hope that regulators keep their eye on these kinds of people. Ultimately, it really isn’t about money. It is about trust betrayed, and the very human cost.
Except, of course, it’s also about money.
