Ahold receives preliminary approval for fraud settlement
federal court has granted approval for its $1.1 billion legal pay
out to shareholders, compensating them for an overstating of
profits two years ago.
The world's fourth largest food retail and food service group said the US Maryland district court has granted preliminary approval of its agreement with the lead plaintiffs to settle the securities class action.
The company said it will pay around two thirds of the fee upfront, with the remainder due to be paid within six months of the final approval of the agreement, which is expected in June 2006.
Currently more than 70 per cent of the company's sales are generated in the US, with the US Foodservice division bringing in $52 million in third-quarter operating profits - up nearly 86 percent from the same period a year ago.
But in 2003, the Dutch retail giant overstated profits by almost €1 billion ($1.2 billion), mainly at its US foodservice business.
The accounting scandal led to November's announcement of the settlement payment, due to be paid to shareholders who purchased stock between July 1999 and February 2003 just before the scandal broke.
According to an Ahold spokesperson, the total amount that the company will have to fork out is lower than the $1.1 billion of the class action, as the amount is to be tax-deductible and around $100 million is also due to be paid by the company's insurance firm.
But Ahold's annual financial results, to be released on March 29 2006, are still due to be significantly impacted by the pay out.
Indeed, the company recently said it will be reducing its US workforce by 2.4 percent, or 700 jobs, as part of restructuring efforts that will see more than $50 million in charges added to its fourth quarter results.
Ahold's streamlining and restructuring will eventually produce two separate Foodservice divisions: Broadline, which makes up 85 per cent of US sales, and Multi Unit, which provides food to large chain restaurants.
As the company strives to correct its accounts after the financial scandal, an efficiency drive is seen as the most effective way to battle against rising fuel and production costs, while maintaining its competitiveness.
Multi Unit will be given its own brand identity, and should be brought into profitability within the next two years the company claims, causing some speculators to presume this will produce an acquisition target - but only in the long-term.
"After the disposal of non-core activities Ahold has evolved into a changed company, with comfortable balance sheet ratios," Rabo Securities said in a research note.
"However the bulk of Ahold's operations are in the midst of restructuring, making it likely that 2006 will be another transition year."
