AMAZON GOES TO MARKET
E-retail giant to buy Whole Foods in bold $13.7B deal,
NEWYORK— Amazon is buying Whole Foods in a deal valued at about $13.7 billion, a stunning move into brickand-mortar retail that sets the stage for more radical store experimentation and intensified competition with grocery rivals.
Amazon agreed to pay $42 a share in cash for the organic-food chain, including debt, a roughly 27-per-cent premium to the stock price at Thursday’s close. John Mackey, Whole Foods’ outspoken co-founder, will continue to run the business — providing a lifeline to the embattled ex- ecutive after a fight with activist investor Jana Partners.
The deal sends a shock wave across both the online and brick-and-mortar industries, uniting two brands that weren’t seen as obvious partners. But Whole Foods came under pressure to find a buyer this year after Jana acquired a more than 8per-cent stake and began pushing for a buyout. Jana’s move irked Mackey, who has referred to Whole Foods as his “baby.” By enlisting Amazon, he gets to keep his job as chief executive officer of the grocery chain.
In February, Whole Foods said it no longer saw the potential for expand- ing its flagship chain to 1,200 locations, up from about 460 in the United States, Canada and the United Kingdom. There are 13 Whole Foods stores in Canada, with six in the GTA.
Whole Foods shares jumped 27 per cent to $41.99 as of 10 a.m. local time in New York, bringing them close to the transaction price. Amazon shares gained 3.2 per cent to $995.
Amazon already offers grocery-delivery services in five markets, but the Whole Foods purchase would let it expand to many more. Amazon also offers grocery shipments elsewhere, but that’s tough with perishable foods.
The deal has the possibility to be “transformative,” Moody’s lead retail analyst Charlie O’Shea said in a note, “not just for food retail, but for retail in general.”
“Implications ripple far beyond the food segment, where dominant players like Walmart, Kroger, Costco, and Target now have to look over their shoulders at the Amazon train coming down the tracks,” O’Shea said. The deal comes a month after Whole Foods announced a board shakeup and cost-cutting plan amid falling sales. It also had been facing increased pressure from rivals offering more organic options.
Amazon, meanwhile, has been expanding its reach in goods, services and entertainment.
It’s also been testing automation technology at a Seattle convenience store that’s currently open only to Amazon employees. The store uses sensors to track items as shoppers put them into baskets or return them to the shelf. The shopper’s Amazon account gets automatically charged.
Amazon could cut costs if the technology gets good enough to deploy at Whole Foods locations. Whole Foods will keep operating stores under its name. With files from Bloomberg