Risk Factors
30
Ahold Annual Report 2003
Risk Factors
We have contingent liabilities to our joint venture partners.
We operate in a number of markets through joint
ventures. These joint ventures involve certain risks
that we do not face with respect to our consolidated
subsidiaries and franchised stores.
We have entered into various put and call options
with our joint venture partners. In particular, we are
contingently liable pursuant to two put arrangements
with certain of our joint venture partners. Under the
shareholders' agreement dated as of February 24, 2000
(the "Shareholders' Agreement"), relating to our joint
venture ICA AB (formerly ICA Ahold Holding AB)
("ICA"), we are contingently liable pursuant to put
arrangements with our joint venture partners, ICA
Förbundet Invest AB ("IFAB") and Canica AS
("Canica"). Under these put option arrangements (the
"ICA Put Option"), each of our joint venture partners has
the right of first refusal with respect to the sale of the
shares in ICA of the other joint venture partner. If one
of the joint venture partners is offered the shares of the
other joint venture partner constituting no less than
5% of the outstanding shares of ICA and opts not to
purchase such shares, the selling joint venture partner
may exercise its ICA Put Option pursuant to which we
are obligated to purchase such shares for cash. If the
selling joint venture partner is exercising its ICA Put
Option with respect to all of the ICA shares it held, we
also are obligated to offer to purchase all of the ICA
shares held by the non-selling joint venture partner
on the same terms and conditions as those applicable
to the sale of the ICA shares. The ICA Put Option may
be exercised beginning on April 27, 2004.
If the ICA Put Option is exercised, we and the
selling joint venture partner must negotiate the price of
the ICA shares in good faith. If we and the selling joint
venture partner cannot agree on a price, the price will
be determined using a valuation procedure, which
varies depending on the period in which the ICA Put
Option is exercised, as described in more detail below. If
the ICA Put Option is exercised prior to April 27, 2005,
the valuation of the shares (if the parties cannot agree
on the price of the shares) will be performed by an
independent valuation expert jointly appointed by us and
our ICA partners. The valuation procedure must use a
formula equal to (a) the fair market value of the shares
to be put to us (as if the Company was listed to the
Stockholm Stock Exchange not including any control
premium) at the time of exercise (the "Revised Equity
Value") plus (b) an amount equal to the product of (i)
the Revised Equity Value and (ii) the Premium Rate
(as described below). The "Premium Rate" is the
percentage equal to (x) the equity value for the ICA
shares on which the price Ahold paid to acquire its 50%
interest in ICA was based divided by (y) the fair market
value (also as if the company was listed, not included
any control premium or assumed future synergies
resulting from the acquisition) of the ICA shares on
December 9, 1999 (the date of the heads of agreement
relating to the purchases of the ICA shares by Ahold)
(the "Base Equity Value"), minus 100%. If the ICA
Put Option is exercised on, or after, April 27, 2005,
and the parties cannot agree on the price of the shares
being sold, the valuation of the shares will be performed
by three independent valuation experts using a formula
based on the acquisition value of ICA, as well as
an amount reflecting the premium that would be
expected to be paid in a transfer of the full control
of ICA characteristic at the time of such acquisitions
internationally.
Under the Shareholders' Agreement, in October
2002 Ahold and the ICA Partners jointly appointed
an independent valuation expert (the "Shareholders
Expert") to determine the Base Equity Value. The
Shareholders Expert calculated a range for the Base
Equity Value and delivered its determination to the
parties in October 2003. Ahold and the ICA Partners
previously had agreed to use the midpoint of the range
calculated by the Shareholders Expert for purposes
of determining the Premium Rate.
On November 27, 2003, Canica initiated an
arbitration proceeding with the Arbitration Institute of
the Stockholm Chamber of Commerce, challenging the
valuation by the Shareholders Expert. Ahold is vigorously
objecting to Canica's challenge in this arbitration
proceeding. A decision by the Arbitration Institute is not
expected before August 2004. No assurance can be
given at this time as to the outcome of this arbitration
proceeding, including as to whether the valuation by the
Shareholders Expert will be binding upon the parties. If
it is determined that such valuation is not binding, a new
determination of the Base Equity Value will be required
to be made which could be higher or lower than that
determined originally by the Shareholders Expert.
Although we believe it is unlikely that IFAB
will exercise its ICA Put Option, we cannot assure
you that the ICA Put Option will not be exercised
by one or both of our joint venture partners.
Since it is uncertain whether or when the ICA Put
Option will be exercised and since the value of
ICA may change and is subject to negotiations,
we currently cannot determine the actual price we
would have to pay for the ICA shares upon the exercise
of the ICA Put Option. Nonetheless, we retained an
external valuation expert (the "Ahold Expert") to
determine the estimated Revised Equity Value of the ICA
Shares assuming the ICA Put Option were exercisable,
and had been exercised in full, as of year-end 2003, as
well as the Base Equity Value and the Premium Rate, in
accordance with the requirements of the Shareholders'
Agreement. Based on the valuation by the Ahold Expert,
we estimated that we would have to pay an amount of
approximately EUR 2.1 billion for all of the ICA shares
held by our ICA joint venture partners, if the ICA Put
