Royal Ahold, the Netherlands-based operator of Giant, Stop & Shop and other grocery chains, said Wednesday it agreed to sell distributor U.S. Foodservice to a consortium of private-equity firms for $7.1 billion.
The sale cuts ties between Ahold and the subsidiary whose accounting scandal caused it to overstate earnings by around $1 billion from 1999 through 2002, pushing it to the brink of bankruptcy. Ahold has gradually returned to firm financial footing by refinancing and selling assets.
Several U.S. Foodservice managers were convicted of fraud in the scandal, and the Securities and Exchange Commission has accused 30 more people of signing false audit statements.
Ahold said the transaction with Clayton, Dubilier & Rice Fund VII LP and Kohlberg Kravis Roberts & Co. is expected to close in the second half of 2007, pending customary conditions, including antitrust clearance and shareholder approval.
Ahold's board is asking shareholders to approve the sale at a special meeting scheduled for June 19.
"I am extremely pleased to be able to announce that we have reached this important milestone for U.S. Foodservice, for Ahold and for our shareholders. We have focused on restructuring U.S. Foodservice, strengthening its capabilities and restoring profitability," said President and Chief Executive Anders Moberg.
U.S. Foodservice, the second-largest food distributor in the United States, distributes bulk food to cafeterias in schools, prisons and hospitals. It reported 2006 net sales of $19.2 billion, Ahold said. Sales in the fourth quarter were up 5.1%, and operating profit was $81 million, back in the black after a year of restructuring.
Flurry of Buyouts
The purchase of U.S. Foodservice is the latest in a flurry of buyouts by private-equity firms in the past year, including the $45 billion takeover of energy provider TXU by TPG and the $25 billion purchase of Sallie May by J.C. Flowers & Co. and three other investors.
Clayton, Dubilier & Rice, founded in 1978, has a long history in food distribution. It acquired United Kingdom-based distributor Brakes Group in 2002 and controlled another U.S. distributor, Alliant Exchange, for six years before selling it to Ahold in 2001.
CDR bought Lawn care and pest control provider ServiceMaster in March and partnered with Carlyle Group and other investors to buy rental-car giant Hertz in December.
Officials with CDR and Kohlberg Kravis Roberts said they planned no major changes in the operation of U.S. Foodservice or its executive structure.
"We and our partners at CD&R look forward to working with the company's management team, which has done an excellent job of refocusing the business in recent years, to continue executing the strategic initiatives in place," KKR member Michael Calbert said in a statement.
Said Robert Aiken, president of Columbia, Md.-based U.S. Foodservice: "We are pleased to be partnering with two outstanding firms - two of the oldest private-equity firms in the business - which have a great understanding of our industry, from both a financial and operating standpoint."
Ahold, which holds its annual meeting Thursday, is one of the world's largest grocery retailers and a leading supermarker retailer in the U.S. Its shares that trade in the U.S. rose 92 cents, or 7.2%, to $13.65 Wednesday.