Amazon offers to buy Whole Foods for $13.7bn

August 2017 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

August 2017 Issue

Online retail giant Amazon is to acquire Whole Foods Market Inc in a landmark deal worth $13.7bn, including debt.

Amazon will pay $42 per share for Whole Foods, a brand which was founded in 1978 and now employs 87,000 people in more than 460 stores in the US, Canada and the UK.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

For Amazon, the deal is a sea-change from its previous acquisitions, the vast majority of which have been tech start-ups. This move into brick-and-mortar retail could be transformative for not only the Seattle-based company, but also for the wider $800bn US food and grocery market.

Established food and grocery companies have come under increased pressure in recent years as new entrants, including German discounters Aldi and Lidl, have begun to make inroads in the US market. As a result, Walmart, the market leader and the world’s biggest retailer, has had to discount its prices, even for organic groceries, to retain its market share. Following the announcement of the deal, the stock of competing grocery chains fell precipitously. Walmart saw around $13bn wiped off its value as its shares fell 6 percent.

Completion of the all-cash deal is subject to approval by Whole Foods’ shareholders, as well as regulatory approval and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.

“This partnership presents an opportunity to maximise 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,” said John Mackey, Whole Foods Market co-founder and CEO. Whole Foods will continue to operate stores under the Whole Foods Market brand, the companies confirmed. Mr Mackey will remain Whole Foods’ CEO and the company’s headquarters will stay in Austin, Texas.

Mr Mackey has come under intense pressure to sell his business from activist investor Jana Partners, which bought a 9 percent stake in the company in April. Jana had criticised the company’s management for “chronic underperformance for shareholders”, calling for management and strategic changes and raised the possibility of a sale. Given that Mr Mackey has previously rebuffed any calls for a sale, the deal with Amazon caught many analysts, and the rest of the grocery retail market, off guard.

For Amazon, the acquisition will see the company become the fifth largest US grocery retailer after Wal-Mart Stores, Inc., Kroger KR, Costco and Albertsons/Safeway. However, the deal could have serious implications for a number of Amazon’s already established grocery offerings, such as the ‘cashier-less’ Amazon Go retail stores and Amazon Fresh, the company’s online grocery delivery service which operates in limited markets.

Amazon’s use of technology, data and logistics capabilities could help differentiate the Whole Foods stores from the company’s conventional competition and improve the overall customer experience. Thanks to technology which automatically scans items as they are added to a shopping basket, Amazon could eliminate checkout lines at its Whole Foods locations, dramatically reducing the amount of time a customer need spend in a store. Equally, given that a quarter of American households are already buying some of their groceries online, according to the Food Marketing Institute and Nielsen, Amazon may use the Whole Foods stores as collection points for their Amazon Fresh.

Indeed, by purchasing Whole Foods, Amazon has given itself leverage to expand its online grocery and delivery business in areas where much of the company’s customer base is located. Many of Whole Foods’ 430 US stores are in urban locations in large markets, such as Los Angeles and New York. Amazon Fresh currently operates in similar locations.

Richard Summerfield