After revealing Europe’s worst accounting scandal, the future of Dutch food
giant Ahold looks shaky, despite some good news about its Argentine subsidiary.Ahold shares lost more than two-thirds of their value at the Amsterdam exchange in one day last week, the day it announced that accounting irregularities could exceed half a billion dollars at a US subsidiary.
The shares’ value rose again after Ahold announced that a probe into its Argentine subsidiary Disco had turned up nothing that could impact the company’s financial results.
Disco had been a prime suspect for more fraud at Ahold after the company said it would investigate the legality of certain transactions there.
“The fact that there were no skeletons in Disco’s closet is very good news. Disco’s board of directors has resigned and that seems to add weight to the suspicion that illegal transactions took place, but the important thing is that they will not impact the finances”, said Ton van Ooijen, an analyst at the brokerage firm SNS Securities.
In the United States investigations are ongoing into accounting irregularities discovered at US Foodservice. The American subsidiary of Ahold specializing in catering to large companies overstated its income by more than 500 million dollars between 2001 and 2002. The management of US Foodservice has apparently booked vendor allowances as income before they were received, if they were ever received.
Such accounting irregularities have already affected other distributors in the United States. The Kroger supermarket chain was forced to review its figures from 1998 to 2000 after it was discovered that one of their stores overstated operating profit.
An Ahold spokesman said that the company had reported accounting problems in the US and Argentina to the AFM, the Dutch market monitoring body, the US Securities and Exchange Commission and the relevant justice authorities in New York before the matter was made public last week.
After the revelations at US Foodservice Ahold faces a host of legal troubles and an uncertain future. The Dutch and American stock exchange regulatory bodies have started inquiries to investigate possible insider trading and several US law firms have filed suits claiming Ahold misled investors.
For the analysts it is primarily the financial position of the world’s third-biggest food distributor that worries them. Ahold is now paying for a decade’s buying frenzy that was not always financed carefully.
Ahold now faces debts of around 12.5 billion euros.
Analysts predict that Ahold’s activities in East Asia -- Indonesia, Malaysia and Thailand -- and in Eastern Europe and Spain would be first in line for the chop.
Rumored buyers include the world’s largest distributor, Wal-Mart of the US, and the number-two, the French group Carrefour.
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