Ahold Settles Suit, Clears Way for Peapod Buyout

Royal Ahold (NYSE: AHO) said Friday it has settled a lawsuit with shareholders of Peapod (Nasdaq: PPOD), clearingthe way for a planned buyout of the online grocer.

The settlement, which still must be approved by a judge, makes it possible forAhold to move ahead with its planned purchaseof all outstanding Peapod shares.

Ahold’s offer of US$2.15 per share, which was announced in late July, is set toexpire early next week.

Shortly after the buyout offer was announced, at least one Peapod shareholder had sued to halt the deal, claiming the $35 million sale price undervalued the pioneering Web grocer, which traces its roots back to the late 1980s.

The suit claimed that because Peapod’s financial performance had begun to improve since Ahold paid $73 million for a majoritystake in the online grocer in April of 2000 and because of the recent closing ofcompetitors Webvan and HomeRuns, Peapod was undervalued in the deal.

The class-action suit, which potentially represented all 16 million U.S. Peapodshareholders, sought to stop the merger from moving forward and to awardshareholders financial damages and attorneys’ fees.

Better Days

In fact, Chicago, Illinois-based Peapod has already started to benefit as its field of competitors thins. A Peapod spokesperson said recently that during thepast month, orders and new customers have nearly doubled in Chicago, where Peapodcompeted with the now-bankrupt Webvan, and are also up in Boston, where it wenthead-to-head with HomeRuns.

Peapod has also begun to expand its Washington,D.C. service area to move into urban and suburban areas previously served by HomeRuns.

The bigger picture may be a bit less rosy, however. Jupiter Media Metrix recentlyslashed its forecast for online grocery salesin half for 2001, from $2 billion to $1 billion, and pulled back on earlierprojections for long-range industry growth.

‘Without Merit’

Ahold, which did $24 billion in sales last year, said despite agreeing to a settlement, it maintains that the suit was “without merit” and said it had intended to vigorously defend against it.

Financial terms of the settlement were not disclosed. Ahold, which is based inthe Netherlands and operates 8,500 brick-and-mortar stores worldwide, includingU.S. grocery chains Stop & Shop and Giant Foods, said its offer to buy Peapodremains on the table.

If the deal goes through, Peapod will be absorbed into an Ahold subsidiary andPeapod shares will be delisted from the Nasdaq.