Tuesday 16 January 2018

Amazon buys supermarket giant in €12bn bombshell

Analysts believe Amazon chief Jeff Bezos made the deal for Whole Foods Market as the e-commerce giant ‘clearly wants to be in grocery’. Photo: Bloomberg
Analysts believe Amazon chief Jeff Bezos made the deal for Whole Foods Market as the e-commerce giant ‘clearly wants to be in grocery’. Photo: Bloomberg
The Seafood section is pictured inside a Whole Foods Market in Manhattan, New York. Photo: Reuters

Nick Turner

Online retailer Amazon.com is to buy upmarket US grocery chain Whole Foods Market for $13.7bn (€12.2bn), in a bombshell deal that catapults the e-commerce giant into the supermarket business with hundreds of stores across the US.

Amazon’s reach and its developing drone delivery projects means the deal has global implications for the retail sector.

The deal sent a shockwave through the markets – sending shares in rivals like Walmart and United Natural Foods into a tailspin.

A deal unites two brands that weren’t seen as obvious partners. But Whole Foods came under pressure to find a buyer this year after activist investor Jana Partners acquired a more than 8pc stake and began pushing for a buyout. Jana’s move irked John Mackey, Whole Foods’ outspoken co-founder, who has referred to Whole Foods as his “baby”.

He referred to Jana as “greedy bastards” who were only interested in profiting from a forced sale of Whole Foods. By enlisting Amazon, he’ll keep his job as chief executive officer of the grocery chain.

Amazon agreed to pay $42 a share in cash for the organic-food chain, including debt, a roughly 27pc premium to the stock price at Thursday’s close.

Whole Foods shares jumped 27pc to $41.99 as of 10am yesterday in New York, bringing them close to the transaction price. Amazon shares gained 3.2pc to $995.

For Amazon, the deal is more about getting a distribution network for groceries, said Michael Pachter, an analyst at Wedbush Securities. The company has long since branched out from selling books to offer a massive home-delivery hardware range. It has spent years trying to break into delivering groceries, but hasn’t been as successful as in other categories.

Amazon previously contemplated a takeover of Whole Foods last autumn, but it didn’t pursue a deal, a person with knowledge of the situation has said. The e-commerce company revisited the idea after Jana stepped in.

“Amazon clearly wants to be in grocery, clearly believes a physical presence gives them an advantage,” Pachter said. “I assume the physical presence gives them the ability to distribute other products more locally. So theoretically you could get five-minute delivery.”

The transaction also may help Amazon sideline Instacart, a startup that has delivered grocery orders from Whole Foods stores in more than 20 US states and Washington, DC. “Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” Amazon chief executive Jeff Bezos said in a statement.

The takeover is slated to be completed in the second half of the year, with Whole Foods’ headquarters remaining in Texas.

Jana had called for Whole Foods to overhaul its operations and brought in retail and food experts to help foster a turnaround. In an interview with ‘Texas Monthly’ that ran earlier this week, John Mackey chafed at Jana’s campaign.

“These people, they just want to sell Whole Foods Market and make hundreds of millions of dollars, and they have to know that I’m going to resist that,” he said in the interview.

“That’s my baby. I’m going to protect my kid, and they’ve got to knock Daddy out if they want to take it over.” (Bloomberg)

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