Amazon, the e-commerce heavyweight, unveiled plans on Friday to buy upmarket US grocer Whole Foods Market in a $13.7 billion deal that sent shockwaves across the sector.
Amazon said it would pay $42 a share for Texas-based Whole Foods in an all-cash purchase that includes the group’s debt.
The deal significantly ramps up Amazon’s efforts to disrupt the US grocery industry, an area where it has been slowly building a greater presence over the past few years.
The news ricocheted through the equities markets, sending shares in competitors sinking in early New York trading.
Walmart, the world’s biggest retailer, dropped 5.4 per cent, shedding $12.9 billion in market value. Wholesaler Costco lost $5.2 billion, while discount store Target jettisoned $3.5 billion. Kroger, one of the world’s biggest supermarket chains, faced a $3 billion fall in market value.
Charlie O’Shea, lead retail analyst at Moody’s, said the deal was a “transformative transaction, not just for food retail, but for retail in general”.
“Implications ripple far beyond the food segment, where dominant players like Walmart, Kroger, Costco, and Target now have to look over their shoulders at the Amazon train coming down the tracks.”
The tie-up comes after Jana Partners, the hedge fund that amassed a stake in Whole Foods in April, demanded sweeping changes amid what it called “chronic underperformance for shareholders”.
“This partnership presents an opportunity to maximise value for Whole Foods Market’s shareholders,” said John Mackey, Whole Foods co-founder and chief executive.
Still, Rupesh Parikh, an analyst at Oppenheimer, noted that at $42 a share, “it appears there is some money being left on the table” by “undervaluing the company’s prospects and the powerful brand”.
“Another bid cannot be ruled out even from a defensive measure to protect against the Amazon threat,” he added.
Whole Foods shares surged 28 per cent on Friday to $42.20, after closing on Thursday at $33.06. Amazon rallied 3.1 per cent.
Mr Mackey, who earlier this week called Jana a “greedy bastard”, will remain chief executive, Amazon said. Whole Foods will retain its Austin, Texas headquarters.
Amazon will finance the deal with debt, including a bridge loan financed by Goldman Sachs and Bank of America, the company said in a filing with US securities regulators.
- Copyright The Financial Times Limited
