Dutch food retailer Royal Ahold NV, which owns more than half of Internet grocer Peapod Inc., said yesterday that it has offered $35 million for the rest of the online company.
Chicago-based Peapod accepted Ahold's cash offer of $2.15 per share yesterday for the 42 percent of Peapod stock it doesn't already own. The price represents a 72 percent premium over the closing price of Peapod's shares on Friday.
Shares of Peapod soared yesterday, gaining $1.20 to close at $2.50, on the news, which came less than a week after two of Peapod's major rivals, Webvan and Home- runs.com, shut down.
Peapod won't meet a similar fate because it benefits from buying and co-branding arrangements with Ahold, one of the world's largest food distributors, officials of both companies said yesterday.
Ahold's willingness to invest in Peapod "demonstrates its faith in the model, that it's the winning model, and its confidence in the online grocery sector," said Paula Wheeler, a Peapod spokeswoman.
Once it gains full control of Peapod, Ahold plans to expand the home grocery shopping service to consumers served by its supermarket chains in the United States, Ahold spokesman Hans Gobes said yesterday.
"There really is a need for food home shopping and food delivery, and what we're doing in the Peapod/Ahold business today is much appreciated by our customers," Gobes said.
Peapod already offers its online grocery ordering and home delivery service through arrangements with Ahold-owned supermarket chains Giant Food Inc. in the Washington area and in Howard County and Stop and Shop in Boston, Connecticut and Long Island, N.Y. Peapod also serves the Chicago area, the only area in which it has reached operating profitability.
In the Washington area, Peapod has a buying arrangement with Ahold, using Giant Food as its supplier and selling online the products and brands carried by the Baltimore-Washington region's largest supermarket chain.
"In the coming years we will further expand [Peapod], and use the know-how and the IT systems to really get it to all our customers in the U.S.," Gobes said. "It will always be tied to our supermarket business. We will use the size and the economies of scale we have with total operations. That also makes Peapod more competitive."
Ahold will determine which of its U.S. supermarkets will benefit from online service, analysts said.
"They'll have better ability to pick and choose where they can do it efficiently," said George Dahlman, an analyst with U.S. Bancorp Piper Jaffray.
Gobes described the planned purchase as an opportunity to gain a 100 percent stake in the online company, "for a limited amount of money."
Said Wheeler: "It's great for Peapod because it gives us the ability to focus entirely on executing our strategy. We have solid financial backing."
Peapod had sales of $93 million in 2000 and $24.9 million in the first quarter of 2001.
Ahold's announcement came within a week of the failure of two rival Internet grocers, Webvan, which competed with Peapod in Chicago, and Homeruns.com, which competed with peapod in Boston and Washington. Since those competitors shut down, Peapod has seen a 50 percent jump in sales in Chicago and a boost to business in Boston and Washington, Wheeler said.
Peapod, founded 12 years ago in Chicago, will retain its brand name and become a wholly owned subsidiary of Ahold. The acquisition is expected to be completed by the end of September and to have a nearly neutral impact on Ahold's earnings per share for 2001, the company said.
Peapod nearly ran out of cash before Ahold bought its initial stake in the company in April 2000. It has pulled out of five markets since last fall: Dallas, Houston and Austin, Texas; Columbus, Ohio; and San Francisco.
Wire services contributed to this article.