In Perhaps Fatal Blow, Investors Cancel Peapod Funding

Peapod Inc., a top online grocer in an industry still shopping for enough customers to turn a profit, suffered a potentially fatal blow Thursday when a group of investors withdrew an offer of $120 million in badly needed financing.

The canceled delivery, blamed on the sudden departure of Peapod’s chief executive, Bill Malloy, for health reasons, sent the company’s stock into a free fall. Peapod shares were down $4.09, or 52%, closing at $3.72 on Nasdaq, well off their 52-week high of $16.37.

Peapod, which has steadily lost money since its 1989 inception despite building its customer base to 100,000 people in eight U.S. metropolitan markets, had counted on the financing to foot ambitious expansion plans in an industry in which competition is fast stiffening.

Without it, the suburban Skokie, Ill.-based company said, it has only about $3 million in cash on hand. It said it has instructed the board of directors to consider a possible sale as well as alternative financing.

Analysts say the company’s crushing debt load could make it hard to attract a buyer. However, it may be able to sell its customer databases and three warehouses in Chicago, New York and San Francisco to other online grocery companies looking to expand nationally, said Evie Black Dykema of Boston-based Forrester Research.

Peapod said the investors’ pullout came after Malloy informed the company he would not be able to continue as CEO and president for health reasons.

A company statement did not elaborate, and Peapod spokesmen did not return repeated telephone calls.

An official close to the company, who spoke on condition of anonymity, said Malloy was hospitalized Wednesday after his health began to suffer during marathon talks aimed at securing the critical funding.

“They need a cash infusion quickly in order to survive,” said Barry Stouffer, an analyst for J.C. Bradford & Co. in Nashville. “This industry is attracting a lot of capital, and if they had the luxury of having six months to get it, I’m sure they could. Whether they can do it in three or four weeks, I don’t know.”

In 1999, Peapod lost $28.5 million on revenue of $73.1 million.