Ahold chief calls for calm amid new shareholder revolt

Ahold last week received a summons from the Dutch shareholders association VEB which is challenging the retailer in the courts over what it called "the adequacy of Ahold's annual reports"​.

VEB claimed that it wanted to "discover the truth and to establish the responsibilities of the parties involved"​ in the fraud which rocked the Dutch company last year, as well to "investigate the possibility of recovering damages"​ from the company.

The VEB is calling, therefore, for the annulment of Ahold's financial statements from 1998 up to and including 2002, as well as a more thorough investigation of the financial dealings of the company over that same period.

But Moberg has pleaded with the association to drop its legal challenge and allow Ahold to draw a line under the events of the past year. This, he argues, will allow the company to learn from its mistakes and concentrate on improving its current trading status - vital if it is to recoup the €1 billion wiped off its balance sheet by the fraud.

In an open letter published on the company's website​, Moberg said that the VEB's demands were "counterproductive and keep management from doing what is most required now: creating value for shareholders"​.

"Following the announcement of accounting irregularities on 24 February 2003, people at Ahold have tirelessly worked to prepare the financial statements for 2002. The restated figures for 2000 and 2001 are included therein. The 2002 financial statements have been completed after extensive and expensive forensic investigations involving the entire group.​

"On 26 November 2003, shareholders adopted the financial statements 2002 with a majority of more than 99 per cent. The VEB now attacks the financial statements which have been accepted by the vast majority of shareholders. No interest is served with this action. Ahold will incur substantial costs for the defence against this action, which it could better save."​As for the calls for an investigation, Moberg said that there had been a number of governmental and regulatory investigations in progress for almost a year by different bodies in and outside the Netherlands. "Ahold is fully co-operating with these investigations and has stated more than once that it will disclose the results of these investigations as soon as they are completed,"​ he said in the letter.

"Also, Ahold has stated that it will seek to recover damages from those who participated in or knew of fraud that has been committed. The investigation will not create any additional value for shareholders above what has and will be obtained from the pending investigations, the results of which will be disclosed. On the contrary, it will require much time (possibly years) and disrupt the normal course of business."​

He also sought, however, to reassure shareholders that the new management team in place at Ahold was fully committed to creating value. "The first step has been set by the refinancing of the company. That has been completed. Now, management must be able to fully focus on the successful running of the retail and foodservice operations (with more than €56 billion sales and approximately 350,000 employees)."​

But the VEB still remains highly sceptical of the quality - and accuracy - of the information in Ahold's published accounts.

"Despite the greater level of detail provided in the 2002 Annual Report, grossly inadequate information has been provided about the parties and/or persons responsible for misappropriation of funds, the manner in which the management board dealt with and was involved with such misappropriation of funds, the role of the auditor, the quality of supervision exercised by the supervisory board and the manner in which the supervisory board responded to indications of seriously inadequate accounting standards"​ it said.

It also called into question the entire acquisition of the US Foodservice business at the heart of the fraud. "From the information so far available, the conclusion must be drawn that the vendor bonus fraud originated prior to Ahold's acquisition of US Foodservice. US Foodservice was therefore overvalued when it was acquired. VEB is of the view that it is the duty of the current executive and supervisory board members to take all appropriate measures to recover at least part of the damage from those responsible."​

Ahold's shareholders will be asked in March to vote on the VEB's claims, but the shareholders' association has thus far refused to back down.

Despite getting off to a rocky start - shareholders threatened to rebel over his appointment because of the size of his remuneration and bonus package - Moberg appears to have set Ahold on the right track to recovery, with a programme of disposals and restructuring affecting every part of the business.

While it will take several years before the real benefits of this programme will be fully felt - and many more after that for Ahold to regain its status as one of the world's biggest retail groups - the new management team does seem to be moving the company in the right direction - which is why it could well do without the distraction of the VEB's legal challenge.

Of course, Moberg's call for the challenge to be dropped could be because further legal action might uncover more irregularities, but this is unlikely, with the restated accounts already likely to have been examined closely by shareholders and managers alike.

But the VEB's challenge also highlights the continuing level of distrust between shareholders and management, even with a substantially changed team at the head of the company. Moberg argues that restoring trust could best be achieved by letting him do his job and turn the company around, but ultimately that might not be enough.