SAN FRANCISCO — Online grocer Webvan Group Inc. closed Monday and said it would file for Chapter 11 bankruptcy.
The decision will lay off 2,000 employees and terminate the Foster City-based company’s service to 750,000 active customers in seven markets – San Francisco, Los Angeles, Orange County, San Diego, Seattle, Chicago and Portland, Ore.
Launched in mid-1999, Webvan had been one of the Internet’s highest profile businesses. Promising to revolutionize the supermarket industry by taking orders online and delivering groceries to customers’ homes, Webvan had raised about $800 million from venture capitalists and Wall Street.
The company never came close to making money, losing $830 million since its inception.
“We are very proud of what we accomplished,” Webvan spokesman Bud Grebey said in an interview Monday. “We do believe we had a brilliant concept. We were just ahead of our time.”
Webvan’s board voted to close the company Friday, Grebey said, but didn’t start closing its distribution centers until Sunday. Webvan also pulled the plug on its Web site Sunday.
Each of the company’s hourly workers will receive their earned wages, accrued vacation plus a $900 gift from an anonymous donor, Grebey said. Salaried workers will receive their bonuses for the first half of the year, as well as earned wages and accrued vacation.
Although Webvan had pledged to weather the dot-com downturn, the company’s collapse didn’t come as a surprise. The company has pulled out of three markets – Atlanta, Sacramento and the Dallas area – in an effort to conserve its dwindling cash reserves.
Webvan had warned that it needed an additional $25 million by March 2002 to stay open, but a downturn in customer orders during the past three months forced the company to burn through even more money than management anticipated.
As of June 30, Webvan estimates it had $38 million to $40 million in cash, down from roughly $100 million on March 31.
The company plans to file for bankruptcy in the next week or two, Grebey said. Under the supervision of a bankruptcy judge, Webvan will draw up a plan for repaying its creditors.
Webvan listed liabilities totaling $96.5 million as of March 31 in its most recent quarterly filing with the Securities and Exchange Commission. Webvan dealt with 75 distributors and 500 vendors, according to its SEC filings.
The company’s list of unsecured creditors will include Webvan’s former CEO George Shaheen, who resigned in April, triggering a clause in his contract that required the company to pay him $31,250 per month for the rest of his life. With the bankruptcy, Shaheen “will have to get in line with the rest of our creditors,” Grebey said.
To pay its creditors, Webvan plans to sell its remaining assets. The company had invested heavily in a network of huge distribution centers to support its delivery service. The largest centers, spanning roughly 350,000 square feet, are in Carol Stream, Ill., Suwanee, Ga. and Oakland, Calif.
The bankruptcy represents a final blow for Webvan’s devastated shareholders. The company’s market value has plunged by $7.2 billion since Webvan’s November 1999 initial public offering at $15 per share. The stock peaked at $34 shortly after the IPO, but has been stuck below $1 per share all of this year. The stock’s last trading price Monday was 6 cents per share.
In a sign of the company’s desperation, Webvan’s shareholders last month approved a 1-for-25 reverse stock split in a last-ditch effort to boost the shares above $1 and avoid being delisted from the Nasdaq Stock Market.
The company Monday said it will abandon the reverse stock split, resulting its ouster from Nasdaq.
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