Amazon to buy upmarket grocer Whole Foods for $13.7 billion

Amazon.com Inc said on Friday it would buy U.S. organic supermarket chain Whole Foods Market Inc for $13.7 billion, including debt, marking the internet retailer's largest deal and biggest foray into the brick-and-mortar retail sector.


The upmarket grocer names high organic quality amongst its core values - Whole Foods

The deal, which puts a 27 percent premium on Whole Foods' closing share price on Thursday, would could give the grocer a major competitive edge by allowing it to tap into Amazon's massive power to buy and sell goods at a lower cost.

Whole Foods recently had come under pressure from activist hedge fund Jana Partners LLC, prompting it to overhaul its board.

"I think that this takes all of the pressure off Whole Foods and gives Whole Foods the opportunity to revitalize that business and of course it stems the criticism from all of these activist investors," said Neil Saunders, managing director of GlobalData Retail in New York.

The deal values Whole Foods at $42 per share. The shares were trading just under that level in early trading, while Amazon's shares were up 0.9 percent at $997.41.

Excluding debt, the deal is valued at $13.39 billion, based on 318.9 million diluted shares outstanding as of April 9.

The grocer will continue to operate stores under the Whole Foods Market brand, the companies said.

John Mackey will continue as chief executive of Whole Foods, and the company's headquarters will remain in Austin, Texas.

Amazon and Whole Foods expect to close the deal during the second half of 2017.

Competition worries hit European retailers

Europe's retail index fell 1 percent, reversing earlier gains after Amazon said it would buy Whole Foods in a deal valued at about $13.7 billion, including debt.

AFS Group analyst Jauke de Jong said the deal showed Amazon's determination to get into the grocery business in combination with Amazon Prime.

"Amazon entering the market would mean an increase in competition from a strong player," he said.

Dutch supermarket chain Ahold Delhaize, which has a strong presence on the east coast of the U.S., fell up to 7.5 percent, while elsewhere in the sector shares in French supermarkets Casino, Carrefour fell.

British retailers Tesco, Sainsbury, and Ocado were also sharply hit.

Comment

CHARLIE O’SHEA, LEAD RETAIL ANALYST AT MOODY'S INVESTORS SERVICE:

"Amazon’s announcement this morning that it had agreed to acquire Whole Foods Markets for around $14 billion is a transformative transaction, not just for food retail, but for retail in general.

"Implications ripple far beyond the food segment, where dominant players like Wal-Mart, Kroger, Costco, and Target now have to look over their shoulders at the Amazon train coming down the tracks, but also the potential for multi-channel, which Amazon up until now has largely eschewed."

FERNAND DE BOER, ANALYST AT PETERCAM IN AMSTERDAM, NETHERLANDS, WHICH HAS A BUY ON DUTCH GROCER AHOLD:

“This comes at a moment when the sector is very sensitive to bad news. You had the Kroger profit warning, and people are worried about the entrance of Lidl. So people are very nervous. And then they see this and they think – 'If online is going to kill offline, what am I doing in the sector? Sell.' Whether the reaction is exaggerated or not - it feels exaggerated. When sentiment settles a bit people are going to realize that Ahold can compete just fine.”

TIM GHRISKEY, CHIEF INVESTMENT OFFICER OF SOLARIS ASSET MANAGEMENT IN NEW YORK, NEW YORK:

“That was rumored, I totally dismissed it. Wow. Amazon can pour money into any investment and they don’t need to make money. Investors are used to them not making money. It is $13.7 billion but it is still small relative to the size of the whole company.

"It seems like a bit of an odd purchase because it is brick-and-mortar retail. On the other hand it gives them a distribution footprint to deliver goods in a short time frame. Perishable goods and food aren’t always the best when delivered by FedEx. Obviously canned goods are.

"It gives them a presence, the stores can be expanded to do other things. Amazon has talked about having a brick-and-mortar retail presence where perhaps people just go in to look at things.

"This could be part of that strategy – you take part of a Whole Foods Store and you add in Echo and all the other Amazon products. More and more we will see Amazon brand products as they work to create their own brand at retail.”
 

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