Collected from the Yahoo thread:
News March 31, 03:28 Eastern Time
No one wants to take over online grocer Peapod so far, sources say
Beleaguered online grocer Peapod Inc. so far has failed to attract a firm bid
for the company, despite an aggressive effort by its investment banking firm to
solicit takeover offers in the past week, according to sources familiar with the
situation.
The Internet's largest supermarket began searching for a merger partner or an
outright buyer after the March 16 resignation of chief executive Bill Malloy.
His departure for health reasons prompted venture capitalists to drop a planned
$120 million investment and left Peapod with only $3 million to pay for ongoing
operations.
Through its investment bank of Wasserstein Perella & Co., the Skokie, Ill.-based
online grocer contacted a number of industry competitors, including
HomeGrocer.com, Streamline.com and Webvan Group., sources said.
Peapod has also held talks with several brick-and-mortar companies that might
want to enter the Internet grocery business, such as United Parcel Service of
America Inc., and grocery giants Kroger Co. and Royal Ahold NV of the
Netherlands.
Wasserstein Perella set a deadline at the close of business Wednesday to accept
bids for the company. But no offers have arrived.
``My indication is that they are negotiating with a lot of industry players and
a lot of people are calling them. But nothing has happened yet,' said Arvind
Bhatia, an Internet retailing analyst with Dallas-based Southwest Securities who
has spoken with senior Peapod executives, including founder and chairman Andrew
Parkinson.
Without an immediate infusion of cash, Peapod will likely run out of operating
cash in less than a month and be forced to shut down, analysts said. According
to J.C. Bradford & Co. analyst Barry Stouffer, the company could be considered
``technically insolvent' now as a result of mounting bills owed to its vendors.
Stouffer said the Peapod board met Thursday to consider its options, which
include continuing the search for a buyer, finding bridge financing to keep the
company afloat or tapping a new source of venture capital.
Neither Peapod nor any of its reported buyers would comment Thursday. But
Parkinson released a statement that read: ``We are working closely with our
financial advisors in exploring strategic alternatives for the company,
including possible financings or a sale of the company. I cannot comment on the
specifics of the process ... or whether or not we have received any indications
of interest or offers.'
Started in 1989 by two brothers in Evanston, Ill., Peapod pioneered the deliver
of groceries to customers who place their orders online. The company serves some
100,000 customers in eight major markets and built two centralized warehouses in
Niles, Ill., and San Francisco to fill orders.
Most analysts think there is some value remaining in Peapod, which has a market
capitalization of $59 million. Stouffer estimated its warehouses could fetch as
much as $15 million. But he said its customer base won't be nearly as valuable
to rival companies since consumers will likely migrate to other service
providers anyway if Peapod folds.
``It's hard to make a case that Peapod should be worth more than its current
market capitalization,' he said.
Indeed, Streamline.com Inc. turned down an offer by Peapod to take over its
Chicago-area operations, according to founder and chairman Tim DeMello. Peapod's
customer list did not include enough suburban households to support Streamline's
business model, which targets nonurban residential areas.
``Their customer list was just OK but not good enough,' DeMello said. ``At the
end of the day, we didn't want to focus our energy on consolidating a
competitor.'
Peapod announced last month that the firm had secured a commitment for $120
million from a group of investors, including Pequot Capital Management Inc. and
Leon Black's Apollo Management LP. The promise of cash came as Peapod faced
growing competition from Streamline and Webvan, both of which will be entering
the Chicago region.
But Malloy's departure and the loss of the $120 million investment prompted a
devastating selloff of its stock. The share price traded Thursday at $3.25, far
from its 52-week high of $16.37.
Despite the company's current woes, Southwest Securities analyst Bhatia argues
that Peapod shares should be valued somewhere around $16 to $20.
``Peapod has the highest average order size and the best margins in the
industry,' he said. ``If Peapod doesn't survive, it will be bad for the entire
sector.'
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