Amazon to buy Whole Foods Market in deal valued at $13.7 billion

By Abha Bhattarai

 

The Washington Post

Amazon.com sent a shock wave through the grocery industry Friday when it announced plans to buy Whole Foods Markets and formally enter the world of bricks-and-mortar retail.

The $13.7 billion deal brings to a head a years-long battle brewing between Amazon, the online darling, and traditional retail powerhouses likes Wal-Mart. And it shakes up a U.S. grocery industry that has been struggling to keep up with growing competition, both in stores and online. Amazon, which for years has been testing new technology and innovations in quiet corners, would now have a network of physical locations to test and implement those ideas.

News of the deal sent shares of traditional retailers like Walmart, Target, Costco and Kroger tumbling as much as 13 percent as investors tried to digest the implications of an Amazon-backed grocery chain.

“This deal should leave no doubt that Amazon is deadly serious about dominating all aspects of retail,” Paul Cuatrecasas, chief executive of Aquaa Partners, a London-based investment banking firm, said in an email. “This deal has dramatically flipped the table on traditional companies. Amazon is effectively saying that if retailers are going to tool themselves up with technology, then they will tool themselves up with a physical presence.”

Amazon has recently begun experimenting with bookstores and a small grocery, but this is its most ambitious move into physical retail. The Seattle-based company was recently granted a patent for technology that would block shoppers from comparing prices from mobile devices while they’re in stores.

In Whole Foods, Amazon is acquiring a company that has recently come under pressure from investors for its lagging performance. Whole Foods, whose stores now number more than 430 , has found it difficult to attract more mainstream consumers as Walmart and other large chains have stepped up their sales of natural and organic products.

The organic grocer, which was founded in 1978, would continue to operate under its existing brand. Whole Foods chief executive John Mackey would remain CEO after the purchase and the company would keep its headquarters in Austin, Texas. The merger offers a test of whether Amazon, which has generally built its business on low prices, can successfully integrate a grocer known for premium service and higher p rices.

The deal is sure to put new pressure on Walmart, which has been aggressively expanding its online business in hopes of winning over consumers. The Bentonville, Ark.-based retailer announced Friday that it had agreed to buy online clothing company Bonobos for $310 million. The deal comes just months after Walmart’s $3.3 billion purchase of Amazon competitor Jet.com.

The Whole Foods deal is expected to close in the second half of 2017, pending shareholder and regulatory approvals. Anti-trust experts said the purchase is not likely to raise red flags.

The $42 a share offer from Amazon is a 27 percent premium over Whole Foods Market’s closing stock price on Thursday.

Amazon, which is sitting on $21.5 billion in cash, has long eschewed big acquisitions. Among the company’s largest acquisitions are its 2009 purchase of online shoe retailer Zappos.com for roughly $1.2 billion and video game streaming site Twitch, which it bought in 2014 for roughly $1 billion.

“Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades — they’re doing an amazing job,” said Jeffrey P. Bezos, founder and CEO of Amazon.com.

Business profiles

A look at Amazon.com Inc. and Wholes Foods Market Inc. by the numbers. The online retail juggernaut Amazon said Friday it is buying grocery chain Whole Foods for $13.7 billion, including debt.

AMAZON

Founded: 1994

CEO: Jeff Bezos

Headquarters: Seattle, Washington

Annual sales: $136 billion in 2016

Market value: $476 billion

Employees: 341,400

WHOLE FOODS

Founded: 1978

CEO: John Mackey

Headquarters: Austin, Texas

Annual sales: $15.7 billion in fiscal 2016

Market value: $13.4 billion

Employees: 87,000

 

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