G.P. Fenway, McCown Digest Aurora Foods Losses –

Aurora Foods Inc., 46% of which is owned by Fenway Partners and McCown De Leeuw & Co., announced last month that a special committee will investigate the 1999 accounting practices of the company and re-evaluate projections for the year 2000. The company’s stock price has been in a tailspin since the announcement, which was followed by management resignations, class action suits and baffled shareholders and analysts. During the past thirteen weeks, Aurora stock has fallen 49.3%. Over the 52-week period ending March 3, 2000 Aurora stock fell to $4.63 down 69.2%.

Aurora, producer and marketer of frozen foods such as Aunt Jemima frozen waffles, Lender’s bagels and Mrs. Paul’s frozen seafood, announced in November that its fourth quarter results would not rise to analysts’ projections. The company decided after consulting with their auditors, PricewaterhouseCoopers, to launch an investigation into the accrual of trade promotion expenses in 1999. The committee has retained the law firm, Ropes & Gray, and the accounting firm, Deloitte & Touche, to assist in the investigation. In a release from Aurora, the committee said that it expects the non-cash charge to result in a material reduction in earnings for 1999 and possibly a small loss for the full year.

The committee includes Richard Dresdale, President of Fenway; Andrea Geisser, managing director at Fenway; David De Leeuw, managing director of McCown De Leeuw; Charles Delaney, director of Aurora; and Clive Apsey, director of Tiger Oats, who has a 6.3% stake in Aurora.

The search firm of Spencer Stuart & Associates has already been retained to recruit a permanent CEO, and is now seeking a chief financial officer as well. In the meantime, the board has appointed Dresdale as acting vice chairman; and Peter Lamm, chairman and CEO of Fenway, as acting president and CEO.

Numerous class action suits have been filed by shareholders who purchased Aurora common stock between April 28, 1999 and February 18, 2000. The claim is that the company violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by issuing materially false and misleading statements concerning their financial performance in the first three quarters of 1999. Class action suits are common following significant share price drops in public companies.

According to some market sources, the prognosis for Aurora does not look good. Bill Leach, an analyst at Donaldson Lufkin & Jenrette, said, “I think the only positive that might come out of this is that once the numbers are finalized the company might be put up for sale. I think it is not really viable as a public company anymore.”

Calls to Aurora Foods, Fenway Partners, and McCown De Leeuw were not returned. The companies have made no statements since the original announcement. The results of the investigation are expected by the end of March.