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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Spine of Ruprecht's picture

Do I still get to block the aisle with my scooter?

Dilluminati's picture

Another form of deflation, naked pricing or fixed pricing, the fed raised rates and I laughed, 10 year did what????

That is the definition of getting it wrong you think??

Robert Trip's picture

There will be an in-store Rabbi blessing the food.

Fake Trump's picture

Hallah whole food blessed by Muslims.

BeerMe's picture

Shouldn't be allowed.  Trying to monopolize.

DirtySanchez's picture

When the deal gets signed, I hope many, in silent protest, cover their hands in human filth, then enter Whole Foods and touch everything they can.

Then walk out; after purchasing nothing.

Do this for several days running and bezos is 14 billion lighter.

TwelveOhOne's picture

Well, your advocacy rhymes with your username...  I wouldn't recommend it though.

Tonterias's picture

Another sector killed by FANG

Cordeezy's picture

How will this change the retail world now?  Amazon is huuuuuuuuge!

 

www.escapeamazon.com

rejected's picture

Now the 'disabled' land whales can get their crap delivered to their door paid by............ you!

Robert Trip's picture

Does Bezos play baseball?

Trucker Glock's picture

You can order from Walmart online and they'll bring the shit out to your car and help you load.  And they'll do substitutions in your favor if they don't have what you purchased.  "We didn't have a 750ml bottle, so we substituted a 1.5 liter bottle."  Of booze!  No joke, I witnessed it.  "We didn't have the 24-pack of chicken patties, so we gave you three 10-packs."

StreetObserver's picture

Ummmm...more pesticides, antibiotics, GMOs and weed killer residues to feed your family for less money!

 

Abbie Normal's picture

And if you really believe that Whole Foods made (not grown) in China products are organic, there's a bridge for sale in Brooklyn too.

Ban KKiller's picture

Fight Club will "handle" all "foods" to Mnuchin. Eat up boycunt! 

BustainMovealota's picture

Will Amazon take EBT cards now?  Wouldn't want the lazy fat fuks to get off the couch.

StreetObserver's picture

"Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world..."

Yeah, like China, where allegedly 'organic' crops are grown next to the battery recyling plant and 'certified organic' by Quality Assurance International which bribes local officials and has been involved in scandal after scandal. The chinese can't even make dog food or drywall without industrial contaminants in it, just think about the quality of their 'organics'.

AssWhole Foods "California Mix" of frozen vegetables was, last time we looked, a "product of China" as are much of their house brands. Read the labels!

AssWhole Foods spends more time confusing and tricking customers into thinking they are buying organic than actually sourcing and selling organic food. About 30% of what they sell is organic, and that is of dubious quality and origin.

http://www.naturalnews.com/039195_organic_foods_China_pollution_nightmar...

"Self-Checkout"? It is the patriotic duty of every American to steal as much and whenever they can from these job killing data mining devices where ever you are forced to use them. Remember "the stack", two items stacked on top of each other count as one bar code. Also, the scanning gun, when there is one is just waved around without pulling the trigger, or with your hand over the scanner part. The credit card slot, whatever you do, don't put an old plastic card with something sticky and metal filings in there!

"Huh, I don't know how this thing works, it's magic, not my fault" if you get caught, which is rare.

petroglyph's picture

Friend of mine was touting the cheap price of organic food products from China. I asked about the baby formula, and as you mentioned drywall or pet food [which has killed pets and babies, and the drywall used in Fl. was full of asbestos]. I asked him if he thought that the people packing the "organic" Goji berries washed their hands after they shit, before sending the berries over to whole foods? Dehydrated products have lots of contamination in them, that you have to pay special attention to. Don't eat the farmed fish, there or here.

Fake Trump's picture

Food stamps for Whole Food.

buzzsaw99's picture

amazon isn't all that.  everybody is turning into amazon.  sam's club, walmart, home depot, academy, you name it all have an online presence that is taking little bites out of amazon's presumed internet-delivery monopoly.  This move was a waste of money imo.  We have a whole foods and i have never shopped there in spite of my penchant for healthy food.  the competition among neighborhood grocers is as tough as online retailing maybe more so.

surfvin's picture

Who gonna provide the refrigerated trucks? C.H. Robinson seems to be bouncing on the news.

Robert Trip's picture

Without pesticides and GMO's the entire human race would starve to death.

Whole Foods= a whole lotta bullshit.

StreetObserver's picture

Bullshit. How on earth did people eat before them?

chosen's picture

There were a lot fewer people before 1800.  Everybody ate organic, but because of infections unrelated to eating, life expectancy was 40 at best.  Few people actually starved to death, even during crop failures.  They moved into the cities in search of food and died of infectious diseases.  Cities were a death sump.

StreetObserver's picture

Nice history. Pesticides were invented after WWII when the nerve gas factories were put to other uses. GMOs entered our food supply less than 15 years ago. Just before asthma, ADD, Austism and other childhood diseases skyrocketed.

chosen's picture

Yeah, we die from different stuff now.  Little infection, but more cancers and heart disease.  I suspect most cancers, asthmas, ADD, autism, are caused by environmental factors.

BustainMovealota's picture

Might thin out the human population a little,,  which may not be a bad thing.

Rock On Roger's picture

Bullshit

I grow excellent food without pesticides, fertilizers, or GMOs and I'm sure you don't have a clue how to grow anything.

Abbie Normal's picture

That's fine if you're just growing for your family.  What if you're the farmer that's growing for a thousand families?  Without pesticides and fertilizer,  the crop yield may only be 70%  Try explaining that to the 300 hungry families that have to go without.

Might want to read up on the "green revolution" of the '50s.

surfvin's picture

Without soil and water people would starve to death. Without pesticides and gmo's oncologists would starve to death.

Bunga Bunga's picture

Another reason to boycott Whole Foods. http://www.slate.com/articles/arts/culturebox/2006/03/is_whole_foods_who...

Trade locally. Make your own food.

Falconsixone's picture

Is that women shoplifting?

Holefoods sells gmo shit that's healthy for who? Oh, the Dr.z and pig farmaah.

Dg4884's picture

"I am the King of the World!"

 

- Titanic

Fake Trump's picture

Then where is Trump going to be?

chosen's picture

I wonder how Amazon will deliver, say, bananas.  Sometimes I want yellow ones, but sometimes I have enough yellow ones, and I buy green ones, and sometimes in between.  Most fruit sucks anyways.  American fruit is basically tasteless.  BTW, I don't find Amazon to be all that cheap for a lot of things.  Walmart and Target are cheaper and if you want Trader Joe's stuff, best go to Trader Joe's store, because Amazon vendors will rip you off.

Ban KKiller's picture

Bananas are gassed to the degree of ripeness desired. 

Benito_Camela's picture

So are tomatoes. Picked by illegals while still green, then gassed until they turn red. 

BoxHead1's picture

They'll figure out a way if it's possible. I wouldn't bet against Amazon. 

StreetObserver's picture

AssWhole Foods:

http://www.seattletimes.com/html/businesstechnology/2017179239_organic08...

Seattle Times, "Questions remain about organic food grown in China"

""Lawsuit Alleges Whole Foods Sold Frozen Vegetables from China Grown in a Polluted Region by Prisoners"

http://www.blacklistednews.com/Lawsuit_Alleges_Whole_Foods_Sold_Frozen_V...

 

Meanwhile, here's what a REAL 100% High Quality, locally sourced authentic organic store looks like.

http://www.genatural.com

slwsnowman40's picture

So, when are we going to dust off those anti-trust/monopoly laws?

Last of the Middle Class's picture

You would be really hard pressed to find an example of the "QE" effect that does the exact opposite of it's stated purpose (QE that is). Stifling competition, using government induced wealth for gobbling up smaller companies, increasing serious monopolistic tendencies of certain online operations, net reduction of employees and salaries and last but not least further increasing the wealth divide the "QE" boys just don't want to talk about.

Mr Perspective's picture

Well, this explains why here in affluent Chester County PA they have built TWO new WholeFoods stores within about 15 miles of each other and upon completion they are sitting empty with no official date of opening. One is at the Exton Square Mall (done, but now reported to open as late as NEXT YEAR) replacing the cock-eyed, defunct eyesore that was a KMart. So there is a fancy new, yet empty, store to go with all the empty parking spaces and empty stores at the mall. Whodathunk?

BoxHead1's picture

Love them or hate them Amazon is stacked with the smartest in any industry. They keep making great decisions,

take smart risks and have a real affinity for the consumer(from the programmer to the end purchaser).

A great company despite their left wing boss.  

arby63's picture

lol

They are stacked alright. Stacked with other people's money (and lots of Fed money [aka yours]). Nothing at all wrong with the idea of Amazon. Bezos is a complete twat. 

Let me speculate: If it were not for Obama, Amazon would be bankrupt. Don't try and "connect" the two concepts directly. The premise is what I'm suggesting is reality. 

BoxHead1's picture

No one else built what Amazon has. a delivery fleet. the best cloud servers. killing retail stores. 

Music. Still competing with the juggernaut netflix on netflixs own turf. They'll be doing raw products before long. Amazon will 

deliver plaster board and concrete mix at some point. They are ALL PLACES AT ALL TIMES.

Microsoft tried to get into product sales. Others also but Amazon crushes them before they start. 

AMAZON IS UNSTOPPABLE - I can't even hear the detracters over Amazons great machine  that will build the new America.

 

neutrino3's picture

It is only our fault. As we do not trust his fake news any more, he switched to another monopoly. If we only continued to trust ...? Would live in eternal happiness ever after.

What is next switch on his monopoly repertoire. Water, air, marriage (FUCK) ...?

Still Losing Money's picture

so to save people money, amzn wants to get into the low margin grocery business by buying OVERPRICED WF, which is facing stiffer cometrion from other grocers caryring more organic stuff at lower prices. WF is the LAST store I woudl buy.

just the tip's picture

and this is just in time as amazon is granted a patent for the prevention of instore pricing online.  WTF would they want to do that?  at and on this very day?

https://www.techholo.com/2017/06/16/amazon-granted-a-patent-that-prevent...

Still Losing Money's picture

so to save people money, amzn wants to get into the low margin grocery business by buying OVERPRICED WF, which is facing stiffer cometrion from other grocers caryring more organic stuff at lower prices. WF is the LAST store I woudl buy.