Royal Ahold (NYSE: AHO) said Friday it has settled a lawsuit with shareholders of Peapod (Nasdaq: PPOD), clearing the way for a planned buyout of the online grocer.
The settlement, which still must be approved by a judge, makes it possible for Ahold to move ahead with its planned purchase of all outstanding Peapod shares.
Ahold's offer of US$2.15 per share, which was announced in late July, is set to expire 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 majority
stake in the online grocer in April of 2000 and because of the recent closing of
competitors Webvan and HomeRuns, Peapod was undervalued in the deal.
The class-action suit, which potentially represented all 16 million U.S. Peapod shareholders, sought to stop the merger from moving forward and to award shareholders 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 the past month, orders and new customers have nearly doubled in Chicago, where Peapod competed with the now-bankrupt Webvan, and are also up in Boston, where it went head-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 recently slashed its forecast for online grocery sales in half for 2001, from $2 billion to $1 billion, and pulled back on earlier projections 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 in the Netherlands and operates 8,500 brick-and-mortar stores worldwide, including U.S. grocery chains Stop & Shop and Giant Foods, said its offer to buy Peapod remains on the table.
If the deal goes through, Peapod will be absorbed into an Ahold subsidiary and
Peapod shares will be delisted from the Nasdaq.
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