Peapod Comeback Stalled by New Class Action

Online grocer Peapod’s attempt to rebound from a series of setbacks has been further stalled by a class action lawsuit filed on behalf of all investors who bought the company’s stock between November 8, 1999 and March 16th of this year.

Wednesday’s complaint alleges that Peapod executives said they were confident that the $15 (US$) million in cash on hand in November would carry the company through another quarter, and that they hid damaging financial information from investors until a spate of bad news cut the price of the firm’s stock in half.

Peapod CEO Bill Malloy announced his resignation on March 16th, citing health reasons, and a group of investors — including Apollo Management, the Yucaipa Companies and others — withdrew an offer to float $120 million to the Skokie, Illinois-based online grocer to allow it to expand to new markets.

Stock Tumble

That bad news — along with the company’s admission that it had as little as $3 million in cash left and might not survive a search for buyers or other backers — hammered Peapod’s stock price, dropping it more than 50 percent in a single day. The stock price sank to just above $3, where it has lingered since.

The suit alleges that the stock price was kept afloat during the intervening four months because Peapod disseminated misleading information. The company has said that as many as six similar lawsuits are pending.

Peapod CFO Dan Rabinowitz dismissed the suits as having “little merit.”

To the Rescue

Peapod was one of the first online grocers in the market, but was unable to turn its early presence into early profits. After facing speculation that it would imminently sink, the company announced on April 14th that Holland-based grocery Royal Ahold would pay $73 million for a controlling stake in Peapod and provide an additional $20 million in credit.

Ahold will also link Peapod to many of its U.S. grocery holdings, which include Stop & Shop.

Evie Black Dykema, an analyst who tracks online grocers for Forrester Research, declared in early April that “the game is over for Peapod,” saying the company invested in the online grocery market “10 years too soon” and relied too heavily on outside distributors.

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