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Ahold in $7-billion deal to sell U.S. Foodservice

Private equity firms agree to buy the unit, whose accounting woes hurt its Dutch parent.

May 03, 2007|From the Associated Press

BALTIMORE — Royal Ahold, the Netherlands-based operator of Giant, Stop & Shop and other grocery chains, said Wednesday that it agreed to sell distributor U.S. Foodservice to a consortium of private equity firms for $7.1 billion.

The sale would cut ties between Ahold and the subsidiary whose accounting scandal caused it to overstate earnings by about $1 billion from 1999 to 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 and Kohlberg Kravis Roberts & Co. was expected to close in the second half of this year, pending antitrust clearance and shareholder approval.

U.S. Foodservice, the second-largest food distributor in the U.S., provides bulk food to cafeterias in schools, prisons and hospitals. It reported 2006 net sales of $19.2 billion, Ahold said.

The purchase of U.S. Foodservice is the latest in a flurry of buyouts by private equity firms in the last year, including the $45-billion takeover of energy provider TXU Corp. by Texas Pacific Group and the pending $25-billion purchase of Sallie Mae by J.C. Flowers & Co. and three other investors.

Clayton, Dubilier & Rice, founded in 1978, has a long history in food distribution. It acquired Britain-based Brakes Group in 2002 and controlled U.S.-based Alliant Exchange for six years before selling it to Ahold in 2001.

Clayton bought lawn care and pest control provider ServiceMaster Co. in March and teamed with Carlyle Group to buy rental-car giant Hertz in December.

Executives at Clayton and Kohlberg said they planned no major changes in the operation of U.S. Foodservice or its management structure.

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