By Angharad Couch and Martijn van der Starre, Bloomberg News
Dutch retail giant Royal Ahold NV has put its U.S. Foodservice unit and Tops grocery stores up for sale, and says it will concentrate on increasing revenue at its Stop & Shop and Giant supermarket chains.
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The deals will raise more than 4 billion euros ($5.1 billion), CEO Anders Moberg said at a news conference yesterday in Amsterdam, where the company is based. The company said it will return about 2 billion euros to shareholders.
U.S. Foodservice brought Ahold close to bankruptcy in 2003, after an accounting scandal. In August, Centaurus Capital Ltd. and Paulson & Co., which own 6 percent of the retailer, urged Ahold to sell all of its U.S. stores as competition from Wal-Mart Stores Inc. and Kroger Co. eroded profitability.
“They should have made these strategic choices sooner,” said Robert Verhoeven, who helps oversee $4.9 billion at Van Lanschot Asset Management in Den Bosch, the Netherlands. “It was clear for a long time there were no synergies with U.S. Foodservice.” But, he added, “It’s positive that they’ll use the proceeds to strengthen their remaining business.”’
Verhoeven said he doesn’t hold Ahold shares, preferring Metro AG, Germany’s largest retailer.
“It is now time for us to focus our efforts on strengthening our retail competitive position, particularly in the United States,” Moberg, 56, said in his statement yesterday. He appointed chief operating officers for Europe and the U.S. to speed up decision making.
Ahold also aims to cut operating costs by 500 million euros by the end of 2009, and reduce debt by about 2 billion euros following the divestments. The company will also eliminate jobs at its Group Support Office, which employs 400 people in Amsterdam. It aims to slice costs in half at the office by the end of 2008.
Ahold shares rose 1 cent, to 8.34 euros, in trading yesterday in Amsterdam. They have climbed about 32 percent this year, giving the company a market value of 13 billion euros.
The company has sold more than 30 businesses since Moberg was named CEO in May 2003, unwinding much of the work done by predecessor Cees van der Hoeven. He resigned after Ahold said it overstated profit and inflated sales for three years, following a decade at the helm where he spent more than $19 billion snapping up businesses from Thailand to Chile.
Moberg in 2003 pledged to raise more than 2.5 billion euros by selling assets including Spanish supermarkets. Those sales ended up raising more than 3 billion euros.
Ahold stock, which lost more than three-quarters of its value through 2002 and 2003, is the second-best performer in the nine-member Bloomberg European Food Retailers Index in the past six months, gaining 24 percent compared with a 20 percent advance by the index as a whole.
Sales at Stop & Shop stores open at least a year dropped 0.8 percent during the third quarter, while revenue fell 5.7 percent at the Tops chain on the same basis, Ahold said Nov. 2.
In March, Moberg cut a sales forecast for the U.S. chains in half. Last week, he said slower consumer spending made the third quarter “even more challenging.”
Ahold yesterday named Dick Boer as CEO for Europe. Current U.S. Foodservice CEO Larry Benjamin will take the equivalent post for Ahold’s U.S. operations.
The appointment of Benjamin “looks strange to us, and can be considered as a disqualification of the current U.S. food retail management,’” said Petercam analyst Fernand de Boer.
Stop & Shop has 390 outlets in the U.S. Moberg reiterated that he expects U.S. supermarket chains to post net sales growth of 5 percent and an operating margin of 5 percent.
Ahold bought U.S. Foodservice – the No. 2 U.S. food distributor, after Houston-based Sysco Corp. – for $3.6 billion in 2000. It last year split the unit into one division that serves hospitals and schools and another focusing on fast-food chains.
“There is a lot of interest out there and companies have tried to contact us” regarding the sale of U.S. Foodservice, Moberg said.
The company last month repeated that it is on target to return U.S. Foodservice to its level of profitability before the accounting scandal. Sales at the unit rose 4.7 percent to $4.5 billion in the third quarter, Ahold said last week.
The Tops chain, acquired in 1991, operates 121 supermarkets and superstores in New York, Cleveland, Ohio and northern Pennsylvania.
