Royal Ahold, the international food provider and Peapod, Inc. today jointly announced that they have entered into definitive agreements creating a mutually-beneficial partnership.
Under the agreements, Peapod will continue as a stand-alone company. Ahold will supply Peapod with goods, services and fast pick fulfillment centers. Ahold will initially invest approximately USD 73 million in a newly issued series of convertible preferred Peapod stock at a price of $3.75 per share, representing on a converted basis, 51% of Peapod’s outstanding common stock.
Founded in 1989, Peapod is based in Chicago, Illinois and is one of America’s leading on-line grocers. In 1999, Peapod had sales of USD 73 million and generated a loss of USD 29 million. As a highly experienced grocery e-tailer, the company serves more than 130,000 customers. Peapod primarily contributes its significant e-commerce and home delivery expertise to Ahold, while Ahold will contribute supermarket merchandising expertise and real estate to Peapod.
Robust Partnership to Accelerate Joint E-commerce Strategy
The partnership will give Ahold and Peapod considerable leverage in the rapidly expanding world of food retailing. The individual skills and resources of both companies will benefit consumers and improve financial performance. Peapod brings to the partnership its e-commerce and home shopping expertise, web-based software and ordering systems, web marketing and additional IT skills. Ahold’s contributions lie in its considerable buying power, real estate, strong store brand recognition, extensive customer base and category management expertise. Both companies have agreed upon a strategic alignment and business review which will significantly strengthen Peapod’s financial performance.
Clicks and Mortar Strategy
Ahold USA, through its five supermarket companies located along the eastern seaboard, operates 1063 stores with 1999 sales of USD 20.3 billion. Currently, Peapod works closely with Ahold’s operating companies, Stop & Shop in the Boston metropolitan area and Edwards in the New York area. Through improved supply chain processes, former mezzanine storage areas at Ahold’s US stores can now be converted into efficient `fast pick’ fulfillment centers for Peapod. Peapod will utilize Ahold’s real estate assets to open over 50 of these centers in the coming years. This “Clicks and Mortar” strategy will enhance customer service for Peapod and Ahold.
Ahold USA President CEO Bob Tobin
`Our partnership with Peapod enhances our e-commerce strategy and positions both companies as leaders in on-line consumer food shopping. While Peapod can grow significantly by using our financial strength and buying power, Ahold will accelerate its e-commerce activities within the grocery business and gain access to Peapod’s formidable on-line shopping experience. This expertise can be used not only in the US, but worldwide as well. We are proud to be associated with such specialized talent and to have them as our partner.’
Andrew Parkinson, Chairman and co-founder of Peapod
`Peapod is extremely excited to be partnering with the innovative Ahold family of companies. Their strong financial resources and extensive store base, combined with Peapod’s e-tailing know-how should ensure a solid future in on-line food retailing. This transaction creates a huge potential for Peapod to capture the rapidly growing online grocery business in the highly populated area along the US eastern seaboard.’
Details Regarding the Transaction
The definitive agreements provide for Ahold to initially purchase approximately $73 million of newly issued convertible preferred Peapod stock, which is convertible into common stock of Peapod at a price of $3.75 per share. As a result of the purchase of preferred stock, Ahold will own 51% of Peapod’s outstanding voting stock. Included also in this transaction are warrants immediately exercisable for additional shares of common stock which will increase Ahold’s holding of Peapod’s voting stock to 75%. In addition, Ahold has committed to a $20 million revolving credit. The purchase of the convertible preferred stock is subject to customary conditions including regulatory approval and approval of Peapod’s common shareholders. Due to the limited size of Peapod, the initial impact on the Ahold financials will be minor. The transaction will be negligible for Ahold’s earnings per share and will be accretive after year three.
Peapod shareholders will be asked to consider the transaction at Peapod’s meeting of shareholders, expected to be held this summer. In connection with the entry into the definitive agreements, certain principal shareholders and directors of Peapod, holding approximately 30% of Peapod’s outstanding shares in the aggregate, have agreed to vote in favor of the transaction.
In connection with the definitive agreements, three representatives of Ahold are joining Peapod’s Board of Directors, and Ahold will be entitled to nominate an additional three directors following its purchase of the convertible preferred stock. Peapod is listed on the Nasdaq stock exchange (PPOD). Ahold is listed on the Amsterdam and Zurich stock exchanges and in the form of ADR’s on the New York Stock Exchange.
Concerning Ahold: This press release includes forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially, including risks associated with completion of a definitive agreement for the venture and related approvals, acceptance of the exchange model within the industry, unanticipated costs, competition from other providers, technological challenges and other factors. This press release does not constitute an offer; an offer may only be made by means of a prospectus.
Concering Peapod: Except for historical matters contained herein, the matters discussed in this press release, including statements herein regarding Peapod’s expansion strategy, its market positioning, its future prospects, and its expectations relating to the proposed transaction, are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that these forward-looking statements reflect numerous assumptions and involve risks and uncertainties that may affect Peapod’s business and prospects and cause actual results to differ materially from these forward-looking statements. There can be no assurance that the proposed transaction will be completed on the terms described or at all. This press release shall not constitute a solicitation of proxies or a recommendation as to how any shareholder of Peapod should vote with respect to the proposed transaction.