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 -

  • *AHOLD, CARREFOUR, TESCO FALL TO LOWS ON AMAZON/WHOLE FOODS DEAL
  • *AHOLD DELHAIZE SLUMPS 6.8% IN AMSTERDAM ON AMAZON NEWS

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 Amazon.com 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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finametrics's picture

if they drop the cost in whole foods and remove check-outs, sign me up. why the fuk not? it looks pretty nifty. only drag is i will become a total matrix slave bot on my way to serfdom.

actually. maybe this isn't so great.

BeepBeepRichie's picture

I cant get out of whole foods for less than 70 bucks every time. Its buuuuullshit

markar's picture

That;s because there's nothing in the store under $10

montresor's picture

Whole Foods needed to die and Amazon needed a chain of stores ready to go.. It's a winning deal for sides...  Whole Foods dies with dignity, and "make it easy" Amazon gets the local square footage they need to kill off the check-out line experience..

redtie's picture

Exactly, and Amazon takes out Wal-Mart just like Wal-Mart distorted Kmart...made in the US. My ass.hate Wal-Mart 

rejected's picture

K Mart and Sears took themselves out.

Snot Boogie's picture

Well, I hate the Washington Post fucker more.  

Umh's picture

How did that filet mignon RFID end up in by hamburger?

redtie's picture

I hate Wal-Mart and there EBT Obama phone abusing employees. Take them out Amazon 

JustPastPeacefield's picture

Every supermarket has its own 'organic section' which is huge. So if you really want to pay signigicantly more for your morally superior food, blessed by the pope ... ah, .. pure and natural, you don't have to shop at Hole Foods.

And like somebody else said, if you work for your money, you're more likely to keep shopping at WalMart. The thrill of being a snooty asshole wears off after awhile, and it just ain't worth the bucks.

The country is getting poorer, and the big chains are pretty good at working with tiny margins. I don't see people flocking to Whole Paycheck, even if that bald-headed asshole can bring down labor costs significantly, like any good socialist should. 

Color me skeptical.

ChargingHandle's picture

Why on Earth are they not paying cash? Bezos has PERSONALLY made over 30B  this year alone. Food is such a low-margin sector to begin with so this is going to absolutely kill the rest of the sector. Imagine hundreds of thousands of jobs will go down the toilet as a result of this and AMZN will have robotic shoppers and driverless delivery within a few short years. This is not good for America. I will shop elsewhere. At the price of organic food offerings, I like to inspect the produce first and verify expexpiration dates anyways. 

RafterManFMJ's picture

Why not use OPM if they're dumb enough to give it to you?

rejected's picture

Absolutely!   Government does...

TwelveOhOne's picture

Well said!  Hidden in his three-word comment is the insight you'll find at http://losthorizons.com and Pete Hendrickson's book "Cracking the Code".  I just finished the book a week or two ago and it was well worth the price, and the time invested.

What he's saying is that government makes use of money given to them "by mistake" which is what we're doing when we pay taxes -- on income not paid from government sources, that is.

ludwigvmises's picture

I love my Amazon Prime. Go get them, destroy those Mexican illegals employing Wall-Marts and Targets!

Blankenstein's picture

Enjoy those Chinese fakes.

"Furthermore, Amazon's commingled inventory option bundles together products from different sellers, meaning that a counterfeit jacket could be sent to an Amazon facility by one merchant and actually sold by another.

Amazon is making money hand over fist from counterfeiters, and they've done about as little as possible for as long as possible to address the issue," said Chris Johnson, an attorney at Johnson & Pham LLP, which focuses on intellectual property and brand enforcement and represents clients including Forever 21, Adobe and OtterBox. "Word is out in the counterfeit community that it's open season on Amazon."

 

http://www.cnbc.com/2016/07/08/amazons-chinese-counterfeit-problem-is-ge...

Consuelo's picture

 

Bay Area take on this...

 

Whole Foods caters BIGLY to the FAANG crowd.   Get the picture...?

Hubbs's picture

My off-the-wall hypothesis:

People will be running out of money to buy things other than food, so the food supply is the ultimate financial ace in the hole. Amazon has to get into that market.

Concentrate on the potentially more "profitable" snooty organic food crowd at the periphery first before advancing the dagger deep into the heart of the cat-and-cattle food crowd at Wal-Mart. After all, if the yoga class in the park people can afford to buy organic, they afford the "energy tooth fairy" to deliver their groceries by truck- eventually a non-viable economic energy strategy, but by then, Amazon will have driven most of the other chains out of business and will be in the driver's seat and setting up its own food warehouse to which people will have to walk, ride their bicycles, or donkeys to get their food.

 

DC Beastie Boy's picture

Finally I can get my organic broccoli delivered by drone

rejected's picture

Well I thought Bezosshitdotcon was only online. You know,,, get it cheaper and Free shipping to your door and all sorts of other bullshit.

What makes anyone think this POS company, (bunch of freaking geeks), that has made very little profit would know how to operate a real store?  Whole Foods should have let the company die a respectable death.

Well, that explains Bezosshitdotcon increasing prices.

I Write Code's picture

Hey that's great, I always thought what Whole Foods needed was a big book section.

Robert Trip's picture

I'd eat dog shit off of the street before I'd purchase my groceries from Bezos.

baldknobber's picture

With some of the stuff they sell at Whole Foods you can do both at once. True natural and organic straight from the dog's ass

Moe Howard's picture

Do your normal shopping and then do a price check using the reciept with Amazon.

 

I think you will be shocked.

BeerMe's picture

Amazon used to be cheaper.  Now it seems they are a lot more expensive than local stores.

1.21 jigawatts's picture

This should cause a run to crypto (as predicted).  Thanks, koshers!

Glyndwr will return's picture

The bigger they get the less we use them . It's called principles . It used to be called the law as monopolies are illegal and paying no tax used to be too. There will never be anything this company has that I need .

Cforestntrees's picture

So whats next, Walmart Buys Trader Joe's or Aldi?

Robert Trip's picture

THEY control the financial system and all forms of media.

Now THEY'RE going after the food supply chain.

This is 1933 Germany redux.

Spine of Ruprecht's picture

Thank Gawd they don't control our healthcare, unlike Socialist (Nazi) Germany.    dohhhhhhhh

The Count's picture

The day is not far away that people on the Amazon black list will now longer be able to shop for necesseties. And this guy now owns WaPo...

GeezerGeek's picture

That sounds quite close to saying Bezos has something to do with the mark of the beast.

Iconoclast421's picture

This is how central banks choke out an economy

HominyTwin's picture

Yes, exactly. They inflate the stock indexes which inflates the capital structure of the front runners which then acquire everyone else and stifle competition. To the CBs stocks are a money machine with no real consequences in the real world except the price. There are lots of second and third order consequences because of their actions that are more important to the economy in the long run. And many of them are bad consequences.

Panic Mode's picture

Can't wait for Amazon to buy the whole US Army.

cheech_wizard's picture

Just refer to him as Lex Luthor in every post, all the time. The illiterate masses will catch on quicker that way...

BTW, google "jeff bezos philanthropy"...

Skip to the comments sections if available.

Some priceless comments from his warehouse worker slaves.

headfake's picture

"philanthropy"

just another word for tax dodge

globalintelhub's picture

AMZN just killin it www.pleaseorderit.com  Order stuff online

Anteater's picture

If you pay $7900 a month for Elite service, AMZN let's you order fresh Whole Blood, lol.

Bezos just met his Waterloo. Here's why. Everyone is frantically chasing the Last Yuppie.

Here, I'll explain that statement. I just got a notice from SSA that my SS check is being cut -8%.

General Mattis got the Go Sign, the Pentagon needs moar missing -$8,000 BILLION budget clawbacks.

Every one of their Defense contractors, from me to Lockheed, was successfully hacked a few years back.

All their PII hacked. All their business bank auto-deposit links hacked. All their DoD contracts hacked.

That means the Pentagon procurement office is America's Titanic, heading for the Abyss.

Trump has washed his hands in a silver chalice. "Start some wars. Hide the bleedout."

Hey, it worked for Trump H&Cs! The Pentagon has never been independently audited.

The Fed will tighten the choke collar. Then Mil.Gov will raise taxes to fund their pensions.

Then the Yuppies parents will be unable to retire on SS without reverse mortgaging.

Cars sales will plunge. Housing starts will plunge. Millenials are living on fumes.

Yuppie discretionary spending on chi-chi food delivery will plunge.

That will suck all the AMZN right out of Bezos back pocket.

Bezos will be the next Lebron James.

HominyTwin's picture

We call it "Whole Paycheck" round here. Parking lot is always full, for some reason. A lot of people overpaying a lot for food.

Non-Corporate Entity's picture

Too many giants, let them slay each other while I invest locally. People are worried about checkout lines? You'll be standing in line waiting your turn regardless of whether there's a cashier or not. When there's a glitch in the automated checkout machine it takes time for a "supervisor" to even get there, let alone fix the problem. Do we need to even discuss the negative effects when the entire system is down, even temporarily?

redtie's picture

All items in bag will be scanned and charged as you exit no waiting..

 

Silver Savior's picture

Whole foods = whole paycheck.

redtie's picture

Amazon is going to change inventory and price point...eye on the prize...

Silver Savior's picture

Yeah but all this crap takes extra money to produce so how is anyone going to make a profit if Amazon is going to dumb down the prices. I cry epic fail. Amazon is getting away from what they do best. But whatever. It's not like I ever shop there. Let another retail fail. Does not matter at this point.

Robert Trip's picture

According to sources close to the action the next task for Bezos is the amalgamation of every whorehouse in the continental United States, bringing safer and more hygiene services for both the sex trade workers and their clientele for 3 times the price.

There will be a delivery service also.

Get your books, meat and potatoes and a blow job all in one convenient delivery.