In what seems to be a monopoly pursuit of the grocery-store industry, Amazon.com has taken the first steps in absorbing Whole Foods Market Inc.—a $13.7 billion deal! This acquisition will gain Amazon access to hundreds of brick-and-mortar food retailers, which enables the on-line behemoth to embrace its plan to offer a wider array of edible goods.
Currently, Whole Foods Inc. stands to make $42/share (a hard-cash transaction) upon the deal going down—this also entails Whole Foods’ debt! The deal’s actually good for Whole Foods, as they’re selling out at nearly a 27-percent premium than what their stock price was at end-of-day close on June 15th. While Amazon will own the corporation, Whole Foods co-founder John Mackey will remain overseer of company operations. Mackey sees this as positive upon his altercation with activist-investor Jana Partners, which made an effort to remove Mackey from the CEO chair.
[Video: courtesy of Bloomberg]
The Whole Foods-Amazon deal’s ramifications aren’t limited to the parties involved. Digital and physical entities are feeling the effects—Wal-Mart Stores Inc. experienced a 7.1-percent drop; Kroger Co. fell 17 percent. Investors are concerned the ripples will perpetuate amid the ever-growing-relentless market. While Amazon and Whole Foods wouldn’t necessarily be perceived to be in a symbiotic relationship, Mackey saw the need for an acquirer upon Jana revealing its over-eight-percent stake and leaning toward a buyout. Mackey grew irritable of this and wanted to protect his “baby (Whole Foods).” Mackey also considers Jana to be “greedy bastards.”
[Video: courtesy of Bloomberg]
With Amazon at Mackey’s side, he will retain his Whole Foods CEO position and simultaneously see the stock price surge. On June 16th, 11 a.m., the stock zoomed 27 percent ($41.98) in New York—not far from purchase value. Amazon then saw a 2.9-percent gain ($992.11).
Additionally, Amazon will be privy to a vast web of grocers so to run their consumer-preference tests—e.g., customer-shopping methods. The acquisition’s further proof Whole Foods struggles to expediently instill a physical vestige. Enter CEO Jeff Bezos with his attempt to revive the health-food company. It’s probable Whole Foods will see improvements in technology—not unlike Amazon’s efforts with books, general retail, newspapers and many, other markets.
According to an insider, Amazon actually considered the power play back in fall 2016 but chose to hold off. It wasn’t until Jana’s actions that the on-line giant went in for the kill.
“Amazon clearly wants to be in grocery, clearly believes a physical presence gives them an advantage,” Wedbush Securities Inc. Analyst Michael Pachter said. “I assume the physical presence gives them the ability to distribute other products more locally. So theoretically, you could get five-minute delivery.”
More, the Whole Foods acquisition might even be a win for Amazon side-runner Instacart Inc.—a little start-up group known to fulfill Whole Foods-delivery requests (services available in over 20 states including Washington DC).
This acquisition’s the biggest deal Amazon’s made thus far—even compared to their 2014 deal entailing the Twitch Interactive Inc. buyout ($970-million hard cash). In March alone, according to Bloomberg’s data, the Seattle entity held $21.5 billion in hard currency and equivalents—Amazon’s taking it all.
“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” Bezos noted in a recent statement. The absorption will occur during the latter part of 2017—Whole Foods will sustain their Austin (TX) HQ.
Amazon Might Not Be The Only One…
Oppenheimer & Co. Analyst Rupesh Parikh said while Amazon’s currently the sole contender for Whole Foods, they’ve also created a draw for the grocer; hence, other entities may have counter offers—$42’s actually a low price when considering Whole Foods’s prominent brand and prospects. It was early 2017 Oppenheimer threw a hypothetical-buyout value of the mid-$40s range—a solid $45 upon the deal disclosure. “We believe there could be some money left on the table,” Parikh noted to clients.
Jana assessed the health-food company and advised the grocer to up their efforts—retail-and-food professionals were hired to assist in improvements. Whole Foods’s same-store sales (under the business microscope) were dropping—seven quarters consecutively. Mackey has over 460 locations across the US, the UK and Canada (nearly $16 billion/year).
In a Texas Monthly interview, Mackey conveyed vexed feelings for Jana’s actions. Mackey explained Jana’s fixated on the would-be profits from the forthcoming deal alternatively to Whole Foods’s original goal—“conscious capitalism.” “These people, they just want to sell Whole Foods Market and make hundreds of millions of dollars, and they have to know that I’m going to resist that,” Mackey told the magazine. “That’s my baby. I’m going to protect my kid, and they’ve got to knock Daddy out if they want to take it over.”