It has been obvious for some years now that Amazon would buy (or merge with) a brick-and-mortar retailer; even after twenty years, the vast majority of retail is still offline.
But no one expected that B&M retailer to be the struggling luxury grocer Whole Foods.
Amazon said on Friday it would buy US organic supermarket chain Whole Foods Market Inc for $13.7 billion, including debt, marking the internet retailer’s largest deal and biggest foray into the brick-and-mortar retail sector.
The deal, which puts a 27 percent premium on Whole Foods’ closing share price on Thursday, would give the grocer a major competitive edge by allowing it to tap into Amazon’s massive power to buy and sell goods at a lower cost.
Whole Foods recently had come under pressure from activist hedge fund Jana Partners LLC, prompting it to overhaul its board.
“I think that this takes all of the pressure off Whole Foods and gives Whole Foods the opportunity to revitalize that business and of course it stems the criticism from all of these activist investors,” said Neil Saunders, managing director of GlobalData Retail in New York.
The deal values Whole Foods at $42 per share. The shares were trading just under that level in early trading, while Amazon’s shares were up 0.9 percent at $997.41. Excluding debt, the deal is valued at $13.39 billion, based on 318.9 million diluted shares outstanding as of April 9.
The grocer will continue to operate stores under the Whole Foods Market brand, the companies said. John Mackey will continue as chief executive of Whole Foods, and the company’s headquarters will remain in Austin, Texas.
Amazon and Whole Foods expect to close the deal during the second half of 2017.
Whole Foods was a less likely candidate than, say, Target, but the deal still makes a lot of sense. The chain operates 431 stores in the US, UK, and Canada, so there is a lot of potential for increased operating efficiency.
Edit: Or was it an unlikely candidate? Geekwire pointed out that Whole Foods was developing a new model for a highly automated supermarket. 365 by Whole Foods doesn’t look as cutting edge as Amazon Go, but it does show that Whole Foods is looking to the future just as much as Amazon is.
Whole Paycheck, as it is jokingly known, also brings experience in B&M retailing, and is still small enough that it can be dominated by Amazon.
In comparison, Target, with its century of corporate history and 1800 stores would have been a much tougher fish to fry. The friction between the two companies might even have led to another Penn Central type of disaster where the merged parts found out too late that they were wholly incompatible.
That is not likely to happen with Whole Foods.
(Reporting by Nate Hoffelder, Sruthi Ramakrishnan; Editing by Saumyadeb Chakrabarty and Paul Simao)