Amazon sells $16B in bonds for Whole Foods deal
Amazon turned to the debt markets on Tuesday to fund its $13.7 billion acquisition of Whole Foods Market and power Jeff Bezos’s planned conquest of the supermarket business.
The world’s largest online retailer sold $16 billion of unsecured bonds in seven parts, according to a person with knowledge of the matter. In a sign of market interest, the longest portion of the offering, a 40-year security, priced at a yield of 1.45 percentage points above Treasuries — down from initial talk of 1.6 percentage points to 1.65 percentage points, said the person, who asked not to be identified as the deal is private.
The sale marks the first bondmarket foray since 2014 for Amazon and will support the purchase of the organic-food chain, according to a company statement. The partnership, which rattled the grocery world when announced in June, is expected to reduce prices at Whole Foods, an iconic yet struggling high-end grocery trying to lure more lowand middle-income shoppers. The deal could intensify a price war in an industry beset by razor-thin margins and persistent deflation.
The e-commerce giant’s trip to the debt market follows mega bond deals from AT&T ($22.5 billion) and British American Tobacco ($17.25 billion), and this deal is good for the year’s fourth biggest following a $17 billion offering from Microsoft. It also comes at a time when tech companies have been active debt issuers, including a debut offering from Tesla on Aug. 11, and Apple sold its first Canadian-dollar debt sale also on Tuesday.
Amazon, whose identity straddles between a tech and retail company, has been the bane of
retail’s problems as consumer preferences have shifted to shopping online instead of in stores. That makes this offering attractive and “very well-received,” said Matt Brill, a money manager at Invesco.
“You don’t want to own retail because of Amazon — this is the source of everyone’s problems,” said Brill, who planned to participate in the deal. “You get the chance to buy the category killer.”
The bond sale also earned Amazon a two-notch credit upgrade from CreditSights, which now rates the debt as outperform from underperform.
“We are comfortable buying Amazon’s bonds across the entire curve given its strong operating trends and competitive position in both its e-commerce and cloud computing businesses,” analysts led by Jordan Chalfin said in a report.
Bank of America, Goldman Sachs Group and JPMorgan Chase managed the bond sale, the person said.
Amazon’s growth allowed Bezos to turn his gaze onto the supermarket business, where the online retailer has struggled. Shares of grocery giants Walmart and Kroger tumbled after the acquisition announcement.
Amazon has been an infrequent issuer in the investment-grade bond market, with only $7.8 billion of debt outstanding as of June 30. It’s rated Baa1 by Moody’s Investors Service and AAby S&P Global Ratings with a stable outlook.
“Despite the increase in debt, the Whole Foods acquisition is an immediate credit positive for the company on a variety of fronts,” Moody’s analyst Charlie O’Shea said in a report Monday, revising Amazon’s outlook to positive from stable.