AMAZON DEAL ROCKS RETAIL SECTOR
Online giant to acquire Whole Foods Market for $13.7B
Amazon.com Inc. said yesterday it plans to buy struggling natural and organic food pioneer Whole Foods Market Inc. in a $13.7 billion deal that would give the ecommerce giant 430-plus brick-and-mortar stores to distribute fresh food and other groceries.
The deal for the 39-yearold, upscale Whole Foods, which has posted seven straight quarterly sales drops as competitors have increased their organic offerings and been more aggressive on pricing, follows its board shake-up and new cost-cutting plan last month amid pressure from activist hedge fund investor Jana Partners LLC.
Under the Amazon deal, it would continue operating stores under its Whole Foods banner, co-founder John Mackey would remain CEO, and Whole Foods would stay headquartered in Austin, Texas.
“They’re doing an amazing job and we want that to continue,” Amazon founder and CEO Jeff Bezos said.
Amazon didn’t detail its plans for the chain, but the deal rocked the retail sector. Shares of Wal-Mart Stores Inc. fell 4.7 percent to $75.24, and Target shares dropped 5.1 percent to $52.61, signaling fears that Amazon could reduce Whole Foods’ prices and broaden its product mix.
“We expect this transaction to further accelerate the consolidation within the supermarket space,” said Mickey Chadha, senior credit officer at Moody’s Investors Service.
The deal would give Amazon control of 430-plus U.S. Whole Foods stores, nearly all of which are in neighborhoods more affluent and younger than America as a whole, noted David Portalatin, the NPD Group’s vice president of food industry analysis. Those stores would solve much of Amazon’s “last-mile” delivery challenge for fresh groceries — perhaps the top reason it hasn’t made a dent in the grocery shopping of the 60 percent of millennials who buy other items from Amazon, he said.
Amazon has been eyeing stores that could allow traditional in-store purchases, online ordering with on-site pickup and home delivery, using the stores’ warehouses as distribution points. It has just two of its own Amazon Fresh Pickup locations in Seattle.
“Fresh foods are the final frontier for Amazon,” Portalatin said. “This deal gives them credibility with consumers and a major foothold in that space.”
The $42-per-share, allcash deal, expected to close later this year, includes Whole Foods’ net debt and represents about a 27 percent premium to its closing stock price on Thursday.
“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” Mackey said.
Whole Foods had fiscal 2016 sales of about $16 billion. Its shares closed at $42.68 yesterday, up 29.1 percent. Amazon shares climbed 2.4 percent to close at $987.71.