Grocery Stocks Crash After Amazon Buys Whole Foods

Tyler Durden's picture

Whole Foods stock was halted for 'news pending'... and now we have the answer - Amazon to acquire Whole Foods Market for $42/share in an all-cash transaction valued at ~$13.7b, including Whole Foods Market’s net debt.

With 9% of the float short this stock, we can only imagine the squeeze onm this 27% premium over last night's close.

Full Statement:

Amazon (NASDAQ:AMZN) and Whole Foods Market, Inc. (NASDAQ:WFM) today announced that they have entered into a definitive merger agreement under which Amazon will acquire Whole Foods Market for $42 per share in an all-cash transaction valued at approximately $13.7 billion, including Whole Foods Market’s net debt.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO.


“Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”


“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” said John Mackey, Whole Foods Market co-founder and CEO.

Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market’s headquarters will stay in Austin, Texas.

Completion of the transaction is subject to approval by Whole Foods Market's shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.

The purchase of Whole Foods is Amazon's largest acqusition in history:

Amazon expects to finance the acquisition with debt.

  • Amazon enters into commitment letter for 364-day senior unsecured bridge term loan facility in an aggregate principal amount of up to $13.7 billion.
  • Expects to finance deal with debt financing, which may include senior unsecured notes issued in capital markets transactions, term loans, bridge loans, or any combination thereof, together with cash on hand, co says in a filing
  • Goldman Sachs, BofA-Merrill Lynch to lead debt financing

Amazon stock is up 3% on the news...


The sellside was delighted: here is Credit Suisse:

We view this acquisition as an offensive TAM-expansion move to accelerate its progress in the largest consumer spend category. In other words, Amazon is paying roughly 3% of its enterprise value for an improved position in an addressable segment that amounts to ~$1.6t according to the US Dept. of Agriculture’s ERS, especially as progress at Amazon Fresh (in terms of regional rollout) has been admittedly slower than we expected. The knock-on strategic benefit over the longer term should be 1) higher consumer engagement as the frequency of shopping for food and groceries should be greater versus the other verticals, 2) improved consumer selection in the category, 3) likely better bargaining terms with some of its current groceries/fresh produce suppliers, and as an ancillary benefit (while not as meaningful for the near to medium term) a 4) physical store footprint for Amazon-branded merchandise both hardware and softlines.

Others, such as Opennheimer, expect overbids, and OpCo raised its PT from $40 to $45 just on that.

Some context on the relative size.


And Kroger, Wal-Mart, Sprouts, and Target are plunging... (WMT -4%, TGT -5.5%, SFM -7.6%, KR -12%)


And European supermarkets are getting hammered -


With good reason probably. Grocery margin are 1-2% at best, and if Amazon can truly create smart stores with no check outs and cut employees in half they can kill regular supermarkets...

As Bloomberg's Gadfly recently opined, Amazon wil kill your local grocer...

Amazon's done it to books. And electronics. And clothing. Now it wants to rule the grocery aisles.


But Amazon still has a ways to go -- the online retailing behemoth has taken a slow, yet calculated approach to attacking the grocery store. After years of testing the AmazonFresh program in its Seattle hometown, it began expanding the grocery delivery service to other cities in 2013. Today, it delivers fresh fruit and meat in parts of New York, New Jersey, Pennsylvania, Connecticut, California, Washington and Maryland. It also delivers food through its website and its Prime Now program.


And even though research from Cowen & Co. pegs Amazon's market share of food and beverages sold online in 2015 at about 22 percent, that overall online grocery market in the U.S. is pretty small. Out of the $795 billion Cowen expects Americans to spend on food and drinks this year, it estimates only about $33 billion of it will be spent online.


That's because it has taken shoppers a long time to grow comfortable with buying their apples, chicken breasts and granola online when they can stop by a physical store on the way home from work and actually touch and smell the food they're buying. Companies struggle to profit from the very expensive business of picking, packing and transporting fresh food to their customers. It's much easier to mail a video game or book, which doesn't have to be kept cold or free of bruises.


But for Amazon, the grocery business not only brings more sales, it could also make its business more profitable. People tend to buy groceries weekly or daily, so getting them hooked on delivery justifies sending trucks out more frequently. Then any general merchandise, like a book or toy, that Amazon sells along with the food adds to profits. And since Amazon will need more trucks for grocery delivery, it could reduce its reliance on shipping companies, which have contributed to soaring costs. For now, Amazon is likely to take added grocery costs on the chin, in hopes it will pay off down the line.


Growing its AmazonFresh and Prime Now offerings suggests Amazon is gearing up for the long haul in grocery. Though traditional grocers are not likely to see sales migrate to Amazon right away, that luxury won't last. And just like bookstores, your local grocer could be toast.

Thank you Feds...

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slimycorporatedickhead's picture

At the end of every bull market there is no way to keep your company growing (is amazon even profitable? 1% profit isnt much to get excited about) and the only way to keep your company growing is to merge with others.. my 2 slimy cents

NugginFuts's picture

Wow this makes total sense. Bezos should also purchase Best Buy while he's at it. Because online retailers really really really need storefronts to feel important. 

swmnguy's picture

Considering that when I go into a Best Buy they only have 50 different-colored versions of 1 item per category, and the Best Buy employees generally suggest I look on Amazon, I thought Bezos already owned them.  Or maybe he's just pwned them.

Seriously, try to buy a cell-phone case.  All BB stocks are those that fit only a couple models of iPhone or Samsung phone.  Try to find a cable or connector for anything slightly out of the ordinary.  Not possible, and the staff tells you to look on Amazon or Monoprice.  Every time.

christiangustafson's picture

Does this include the Englewood location?

CoastalCowboy's picture

What will they do with Whole Foods?

Whole Foods is pricey when compared to its competitors.  I visited once and never returned.

JustTheTTIP's picture

Remove tills and checkout clerks.

Buying via wireless payment method.

Food that you pick up from the shelves automatically gets charged as soon as you walk out of the store.

Hitlery_4_Dictator's picture

If you don't have the mark, you will not be able to buy or sell....If trump wasn't captured he would stop this electronic payment / one world currency bullshit but he won't. 

tmosley's picture

What is your social security number, citizen? You know you can't transact business without it!

Hitlery_4_Dictator's picture

Ummm, you can still use cash if you want to buy stuff without having a SS#. Soon that will be a thing of the past. Why do you think they make it so easy and affordable to make monthly payments on "smart" phones....soon, even the dense like you will be forced to wake up. Every broke ass snap card recipient has a smart phone, soon snap will go directly to phones. It's all about free living wages and if you take the mark you will get all the transfer payments you need to live....until you suffer a horrible death via torment from God. 

serotonindumptruck's picture

I'm waiting for the microchip implant between the web of my thumb and forefinger. Then I can just wave my hand over the grocery store scanner and have the funds extracted directly from the evil depths of my blackened, sin-filled soul....err...I mean extracted directly from my bank account.

slimycorporatedickhead's picture

It will actually be a QR code tatooed onto your forearm. Scan with your phone. That is the mark of the beast.

NugginFuts's picture

Boy ain't that the sad truth.... had a friend that tried that once. His parents never got him a SSN when he was born, tried to keep him off grid. After high school he tried staying that way. After a few years he gave up living in poverty (couldn't get a job) and ended up in the military.

Another win for Team Big Brother.

Mr.BlingBling's picture

I'm so old that my SS card says "Not to be used for identification."


tmosley's picture

Probably. They also want their supply chain so they can spread Amazon Fresh around the country.

totenkopf88's picture

If Bezos was really smart he would have bought Aldi

markar's picture

It's privately held and they ain't selling.

Bunga Bunga's picture

Aldi beats even Walmart prices and has better quality products. I remember when Walmart tried to get the foot into the German grocery market in the 1990s and they failed miserably because of too much competition. US corporations don't like competition that's why they take them over. It's the greedy shareholders who want to maximize profits and monopolization is the tool.

I hope Lidl and Aldi spread more in the US.

Squid Viscous's picture

or on the moon by now, with all the coin he has spent on his rocket ship fantasies.

what a fucking strange guy

techpriest's picture

Another person who mistook the Star Trek science fantasy as the unavoidable future.

Son of Loki's picture

Employees and many of their customers are super arrogant and rude also ... in my experience. The Aldi chain and the folks they employ are three cuts above whole paycheck.


Whole Foods CEO John Mackey calls investors 'greedy bastards'

Anarchyteez's picture

No! First news, now that prick Bozo wants to control our food!

I really really don't like that guy.

archem's picture

great move to absorb Whole Foods for the Prime Pantry offering. Whole Foods grocery delivery currently served by Instacart - maybe now will be included with prime. 

GunnerySgtHartman's picture

I looked at trying Prime Pantry once ... the prices were not that great ... I kept on buying local.

totenkopf88's picture

Whole Foods and boutique stores will be the first slammed in an economic shitstorm

gatorengineer's picture

I would disagree, Whole Foods in my area has a crap ton of SNAP and EBT shoppers.... buying shit that I cant afford

Sudden Debt's picture

Not really

In a economic downturn, it's the middlesegment that always gets hit the hardest.

Cheap stores sell food to the poor and common man

Expensive stores to the better off who don't care about a 1000 euro's more or less because they handle in hundreds of thousands and millions.


Spine of Ruprecht's picture

Forgive me, I think we should step back and see Whole Foods as a provider to the middle.  It's just uppity.

Overleveraged_and_Impatient's picture

Amazing. This is more bullish news for stocks. Even if this wasn't happening, stocks are still going up and S&P 500 going to $3000 by year end. People, it's time to wake up and smell the coffee.

Good news, bad news, no news, STOCKS ONLY GO UP. The game has changed, and now there is coordinated CB buying, $300+ BIllion of new liquidity created and pumped into markets each month, and administrations of all world countries doing everything in power to increase asset prices.

Look, I get it. The economy is actually weak, everything is overvalued, unemployment is klling us, terrorism is killing us, BUT NONE OF THIS MATTERS WHEN IT COMES TO THE STOCK MARKET.

Stop expecting "some big crash". This is the story line for idiots to go in and short the market so they can skim you. This whole market is designed to get bearish shorters in so they can be skimmed for big money.

NOT ME. I'm not falling for it. I am long 3x Leveraged S&P 500 INDEFINITELY. I predict a slight dip by 10 am, and then fresh highs come afternoon time. Pretend you can can create infinite money and can control prices of stocks. How would you get the most shorters into the markets? This is essentially the job description of the President's Working Group on Financial Markets.

Go long folks.

Enceladus's picture

Not sure why you are getting down voted. Your thesis is 100% correct. This market will goto infinity while nukes fly. All praise Mamon and his master Lucifer. 

Overleveraged_and_Impatient's picture

SERIOUSLY! Thank you.


I don't know why I get so much hate. I am being honest every time I post. It's like people want to downvote the truth or something. Im sorry but there is no crash coming, there's too much money coming in.

ZH has a reputation of bearish news, but none of this matters.

CNONC's picture

I want to see your posts as a clear sign of a top, but I can't.  I think your right.  As long as 200 billion a month is being supplied, both stocks and bonds will rise.  The implications for the future are frightening, though.

Sudden Debt's picture

Yep, this market is going to go up 50% in the next 2 years.

unemployment may be a bitch but what people should realize is that most businessmodels have adjusted to it.

The people still eat, the people still drink and the people still need a roof. And every business conected to it will go up.

We're entering the society where the number of workers is actually the thing that drags you company down.

In today's age: you're rich or you aren't.

We're at the peak and people who can't make it now are the sitting ducks.

And those who have low skilled jobs... good luck... change now or suffer. 

Hyperinflation is happening in the bond and stockmarket. You're in it or not.

deflation is in the real economy because we constantly need less workers, even without the immigration we would have a surplus.

Spine of Ruprecht's picture

"We are at the peak"

Bond markets collapse.   Businesses can't borrow.   Trade freezes.  No doubt, there are sitting ducks.  Many more than are accounted for here.

"You're rich or you aren't."   Tough talk.  'Reminds me of the folks who used to say (in the 90's), "We innovate.  We manage.  They produce."  It was a careless detachment from reality.

The innovators are still there, but under bigger corporate umbrellas (in terms of patents).  The managers..........  The producers..............   a universal wage ........... healthcare

It won't be the number of workers that drags down a company, it'll be the government that drags down your company.

Lots and lots of landlords.  Look for an assault on the "rentier class" next.

PS, I upvoted you.  'Not here for a pissing match.

Squid Viscous's picture

yes for "$3000" you can buy the S&P 500!

what a dipshit, I usually feel bad when people lose money,

but not for you

Overleveraged_and_Impatient's picture

Ok Bro. Go ahead and short the market.

Spine of Ruprecht's picture

Hmmmm.  No staying on the sidelines and putting your capital to work (or saving it) by other means? 

You weren't investing in stocks in 1965, were you?  What followed was the longest 15-years of flatness.....  You won't sound like a genius 10-years into one of those, "Bro".

TwelveOhOne's picture

The fnnuy prat is you can msot lkeliy uderntansd tihs snetcene.  Not waht you wtroe.

R-502's picture

The only reason Amazon and Whole Foods is even in business is because the world is awash in fiat currency. :P

Sudden Debt's picture

it is and even a shitload more will be flooding in.

untill there's 500 companies left that bought all the others they need to create 1 big society ecosystem that works.

that's also why they want people in the big cities and not the countryside because logistical wise it's more profitable.

flyonmywall's picture

Time to stock up on Amazon coins ? !


Cursive's picture

Ha. Ha. Amazon, which doesn't make have operating income, using Wall Street money to buy up real bricks and morter businesses.  Twenty years from, people will see this for the absurdity that it was.

NDXTrader's picture

Why not enter the lowest margin business there is. Why the stock is up on this is puzzling

gatorengineer's picture

Last time I checked low margin was still higher than negative margin

Pyrrhic Victor's picture

WFM brick and mortar locations just became local fulfillment centers for grocery delivery which depending on the delivery radius, can now include perishables. Definitely interested to see how this plays out, Peapod is expensive so the space could definitely use new entrants. Nothing deflates gross margins faster than AMZN entering your market..

shovelhead's picture

Walmart is already there. They are going from grocery truck distribution locations to direct free delivery with minimum purchase.


allamerican's picture

oops, bear calls fried today...

was good money..

Seasmoke's picture

Am I the only one who sees the irony of fucking Amazon getting into bricks and mortar !!!

buzzkillb's picture

That started when they recently opened their B&M bookstores.