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Amazon to Buy Whole Foods in $13.7 Billion Bet on Groceries

Bloomberg logoBloomberg 16-06-2017 Nick Turner and Selina Wang
An employee stocks the shelves with fresh peppers in the produce section of a Whole Foods Market Inc. store in Dublin, Ohio, U.S., on Friday, Nov. 7, 2014. Whole Foods Market Inc. posted fiscal fourth-quarter profit that topped analysts' estimates as the grocery-store chain slashed prices to win over bargain-hunting shoppers. The shares soared the most in four years.: 1478278736_230835710 © Bloomberg/Bloomberg 1478278736_230835710

(Bloomberg) -- Amazon.com Inc. will acquire Whole Foods Market Inc. for $13.7 billion, a bombshell of a deal that catapults the e-commerce giant into the supermarket business with hundreds of stores across the U.S.

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 at Thursday’s close. John Mackey, Whole Foods’ outspoken co-founder, will continue to run the business -- providing a lifeline to the embattled executive after a fight with activist investor Jana Partners.

The deal sends a shockwave across both the online and brick-and-mortar industries, uniting two brands that weren’t seen as obvious partners. But Whole Foods came under pressure to find a buyer this year after Jana acquired a more than 8 percent stake and began pushing for a buyout. Jana’s move irked Mackey, who has referred to Whole Foods as his “baby.” By enlisting Amazon, he gets to keep his job as chief executive officer of the grocery chain.

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

Five-Minute Delivery?

For Amazon, the deal is more about getting a distribution network for groceries, said Michael Pachter, an analyst at Wedbush Securities Inc. 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 fall, 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 5-minute delivery.”

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.

Previous Deals

Amazon’s biggest acquisition announced to date came in 2014, when it agreed to buy video-game service Twitch Interactive Inc. for $970 million in cash, according to data compiled by Bloomberg. The Seattle-based company had about $21.5 billion of cash and equivalents at the end of March, the data show.

“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 Officer 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 Austin, 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, Mackey chafed at Jana’s campaign.

He referred to Jana as “greedy b*******” who were only interested in profiting from a forced sale of Whole Foods.

“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,” Mackey 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.”

To contact the reporters on this story: Nick Turner in New York at nturner7@bloomberg.net, Selina Wang in New York at swang533@bloomberg.net. 

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Lisa Wolfson

©2017 Bloomberg L.P.

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