Grab Ahold

Royal Ahold N.V. (Zaandam, The Netherlands) admitted today that it had overstated its earnings by at least $500 million over the last two years. The company's ceo and cfo are resigning.

The operator of 9000 supermarkets, hypermarkets and discount and specialty stores around the world — including, in the U.S., the Bi-Lo, Giant Food and Stop & Shop chains — said the problems it had uncovered were centered mainly on promotional payments by manufacturers to Ahold's U.S. Foodservice subsidiary. U.S. Foodservice is one of the largest food distributors in the United States, supplying schools, hotels, restaurants and institutions as well as some retail stores.

“These allowances were in some instances booked too high,” said Henny de Ruiter, Ahold's chairman. “We cannot tell you what happened precisely because we have not yet concluded the investigation.”

Promotional allowances, a standard practice in the food industry, have frequently been the subject of accounting problems and inquiries, recently at the Fleming Companies, Kmart and Nash Finch, a Minneapolis-based distributor that had to postpone reporting its third-quarter results last fall because of an inquiry into how it booked the payments.

The company's stock price tumbled by more than 60 percent, wiping out some $5 billion in market value. Standard & Poor's downgraded the credit rating on Ahold's long-term bonds to below investment grade. And the company's bonds plummeted in value on the secondary market, with investors demanding yields of more than 13 percent to buy them; the bonds yielded about 5.3 percent on Friday.

Much of Ahold's attention over the last decade has been devoted to buying up supermarkets in the United States, including 64 stores from the bankrupt, New Jersey-based Grand Union chain, which are now part of its Stop & Shop subsidiary in the Northeast, and the Giant-Landover chain in the Washington-Baltimore area, making it the largest grocer on the East Coast.