Whole Foods rallies after sale suggested

Whole Foods Market Inc. shares surged the most in more than two years after activist investor Jana Partners acquired a stake and suggested that the organic-food grocer consider putting itself up for sale.

The investment firm announced an 8.3- per- cent stake in a filing on Monday, saying it would seek talks with management and push for a review of Whole Foods’ strategic alternatives. Jana also may nominate at least three directors in a bid to help foster a turnaround.

Whole Foods s hares gained as much as 12 per cent to US$ 34.66 in New York, the most since November, 2014. The stock had been up one per cent this year through the end of last week.

The supermarket chain, which helped pioneer the organic-food movement, has been grappling with its worst sales slump in more than a decade. Six-straight quarters of declining same-store sales have forced the company to close stores and rein in costs. A record-setting bout of food deflation has put additional pressure on the entire grocery industry.

“They went from owning the space to having massive competition,” said Brian Yarbrough at Edward Jones. “It’s a strong brand that has really struggled.”

In announcing its investment, Jana vowed to address the weak performance and potentially shake up the board. The New York- based firm also will examine real estate and Whole Foods’ new small-store format called 365.

Still, it may be difficult for Jana to improve performance in the short term, Yarbrough said. An outright sale to a competitor like Kroger Co. may make more sense, he said. “It will be very tough to speed up the turnaround process — the most upside would be with a sale,” he said.

Larger mainstream grocers, including Kroger and Wal- Mart Stores Inc., continue to advance on Whole Foods’ organic turf, weighing on sales. Whole Foods has sought to fight back by offering more discounts and starting the new 365 chain, which is aimed at younger shoppers. But the strategy has been slow to pay off.

The slump prompted Whole Foods to shrink the size of its chain.

JUSTIN SULLIVAN / GETTY IMAGES FILES Whole Foods, which helped pioneer the organic-food movement, has been grappling with its worst sales slump in more than a decade. Activist investor Jana Partners has floated the idea of the U. S. chain selling itself.