Amazon.com Inc. acquires Whole Foods Market Inc. for $13.7 billion, a bombshell of a deal that catapults the e-commerce giant into hundreds of physical stores and fulfils a long-held goal of selling more groceries.
Amazon agreed to pay $42 a share in cash for the organic-food chain, including debt, a roughly 27 percent premium to the stock price. John Mackey, Whole Foods co-founder, will continue to run the business.
The deal sends shockwaves across both the online and brick-and-mortar industries. Grocery chains plunged on Friday — Wal-Mart Stores Inc. fell as much as 7.1 percent, while Kroger Co. tumbled 17 percent — as investors worried that woes will mount in the increasingly cutthroat industry. Amazon and Whole Foods weren’t always seen as obvious partners, but Mackey has been under pressure to find an acquirer after Jana disclosed a more than 8 percent stake and began pushing for a buyout. By enlisting Amazon, he gets to keep his job as chief executive officer of the grocery chain while giving the stock price a jolt.
Amazon gets a network of stores where it can implement decades’ worth of experiments in how people pick, pay for and get groceries delivered. The Whole Foods deal is an acknowledgment that it can’t build its own physical footprint quickly enough alone. CEO Jeff Bezos will try to recast Whole Foods’ ailing business, likely starting with upgraded technology, in much the same he has upended book selling, retailing, newspapers and other industries.
Amazon previously contemplated a takeover of Whole Foods earlier but it didn’t pursue the deal at the time, 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. The transaction also may help Amazon sideline Instacart Inc., a startup that has delivered grocery orders from Whole Foods stores in more than 20 states and Washington, D.C.
The deal would dwarf the size of Amazon’s previous acquisitions. Its biggest announced buyout came in 2014, when it agreed to purchase video-game service Twitch Interactive Inc. for $970 million in cash. The Seattle-based company had about $21.5 billion of cash and equivalents at the end of March.
SOURCE – FINANCIAL TIMES