Royal Ahold NV - The US Foodservice Accounting Fraud

Case Studies | Case Study in Business, Management, Operations, Strategy, Case Study

ICMR HOME | Case Studies Collection

Case Details:

Case Code : FINC044
Case Length : 18 Pages
Period : 2000-06
Pub Date : 2007
Teaching Note : Available
Organization : Royal Ahold NV, US Foodservice
Industry : Retailing
Countries : US/Netherlands

To download Royal Ahold NV - The US Foodservice Accounting Fraud case study (Case Code: FINC044) click on the button below, and select the case from the list of available cases:

Price:

For delivery in electronic format: Rs. 400;
For delivery through courier (within India): Rs. 400 + Shipping & Handling Charges extra

» Finance Case Studies
» Short Case Studies
» View Detailed Pricing Info
» How To Order This Case
» Business Case Studies
» Case Studies by Area
» Case Studies by Industry
» Case Studies by Company

Custom Search

Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

Chat with us

Please leave your feedback

<< Previous

"This case is yet another deplorable example of a massive, multi-faceted fraud at a major corporation. Today, Ahold and former top executives are charged with fraudulently overstating sales by billions of dollars. The company is also charged with fraudulently fabricating hundreds of millions of dollars of earnings."¹

- Thomas Newkirk, Associate Director of the SEC's Division of Enforcement, in 2004.

"In the past 10 years, the company went on a big acquisition spree in Europe and the United States. Its main strategy was to let the local operations run themselves and use acquisitions as the engine of growth. Then Ahold looked to diversify out of groceries into the food service business, and that's where the company ran afoul."²

- William S. Cody, Managing Director, The Jay H. Baker Retailing Initiative, Wharton, in 2003.

Introduction

In May 2006, a Dutch court charged three former executives of the Netherlands-based Royal Ahold NV (Ahold), one of the leading retailers in the world, with fraud.

These executives were found guilty in an accounting fraud that brought the company to the brink of bankruptcy.

The former CEO of Ahold, Cees van der Hoeven (Hoeven) and Michiel Meurs (Meurs), former CFO of Ahold, were issued nine-month suspended prison sentences and a fine of €220,000³ each. The European executive board member of Ahold, Jan Andreae (Andreae) received a four-month suspended sentence and a fine of €120,000.

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

According to the trial judge, "They have damaged the good reputation of Dutch companies in general and Ahold in particular, and betrayed the confidence that shareholders placed in them."⁴

Of the total accounting fraud that led to the reduction in Ahold's pre tax earnings to the tune of US$ 966 million, Ahold's wholly owned subsidiary US Foodservice (USF) accounted for about US$ 856 million.USF was the second largest foodservice distributor in the US. In February 2003, after Ahold announced that the earnings of USF for the financial year 2000 and 2001 were overstated, its shares fell by more than 65% to a 15-year low of €3.43 on February 24, 2003. The market capitalization of Ahold plunged to €3.3 billion in February 2003 from €30 billion in the end of 2001. The media was quick to term Ahold 'Europe's Enron⁵,' while analysts downgraded the company's stock.

Royal Ahold NV - The US Foodservice Accounting Fraud - Next Page>>

Custom Search

Marketing Financial Products
Textbooks Collection

Case Studies in Finance Vol III

Case Study Volumes Collection

1] "SEC Charges Royal Ahold and Three Former Top Executives with Fraud; Former Audit Committee Member Charged With Causing Violations of the Securities Laws," US Securities Exchange Commission, October 13, 2004.

2] "Royal Ahold's Royal Hold Up," Research at Penn, www.upenn.edu, March 12, 2003.

3] As on June 05, 2006, One € = US$ 1.294.

4] Anita Awbi, "Ahold Executives Charged with Fraud," www.foodanddrinkeurope.com, May 25, 2006.

5] Enron Corporation was one of the leading energy companies in the world. The company reported revenues of US$ 101 billion in 2000. At the end of 2001, Enron filed for bankruptcy when it was revealed that its reported financial condition was due to a systematic, planned accounting fraud. The biggest bankruptcy of that time resulted in the dissolution of accounting firm Arthur Anderson.