Peapod Shaken as CEO Resigns, Financing Yanked

Internet grocer Peapod (Nasdaq: PPOD) received a resounding double blow Thursday, as the company announced that its highly respected CEO has resigned for health reasons and investors have yanked $120 million (US$) in planned equity financing off the table.

As a result, the Chicago, Illinois-based company said in a statement that it has advised its financial advisors, Wasserstein Perrella & Co., to look for alternative financing or the possible sale of the company.

Peapod warned investors that it has approximately $3 million in cash on hand, and added that there is no guarantee that "its resources will be sufficient to continue its operations during this process."

The company said co-founder and current chairman Andrew Parkinson will replace Bill Malloy as CEO and will be assisted by two members of a newly formed office of the chairman.

Malloy came to Peapod last year from AT&T's $6 billion wireless business, where he was executive vice president of wireless operations. He was considered by observers to be an aggressive and efficient leader, despite the company's mounting losses. Peapod lost $28 million in 1999 and $22 million in 1998.

Termination Letter

Planned investors Apollo Management LP, Pequot Capital Management, Yucaipa Cos and GRP II LP withdrew a letter of intent that they signed with Peapod in February to provide the equity financing. Peapod had planned to use that money to expand to new markets around the United States. It currently serves eight metropolitan markets, including San Francisco, Boston, Dallas, Texas and its home base of Chicago.

In announcing that revenues were up 46 percent for the fourth quarter, Malloy was upbeat about the company's future last month. Peapod had lined up the $120 million in financing and was intending to build 100,000 square-foot centralized distribution warehouses in new markets modeled after facilities it built in Chicago and San Francisco.

Fight for Survival

Now, instead of expanding, the company will be fighting for its survival. Engaged in a fierce competitive struggle with rivals HomeGrocer, Webvan, HomeRuns and others, Peapod will now have to convince investors that it has a viable future and an executive capable of strong leadership.

Wall Street reacted sharply and swiftly to the news. Peapod's share price plummeted as much as 55 percent in mid-morning trading, down $4-3/16 to $3-5/8.