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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withglee's picture

amzn wants to get into the low margin grocery business by buying OVERPRICED WF,

It really surprises me too. You can buy lots of food brokers for $13B dollars and it seems to me that's the toughest nut to crack in the food business. It's all about purchasing and suppliers. What is their objective that they couldn't build this internally like they did their retail business and just watch grocery competitors wilt on the vine? Doing it this way, they'll have to remove lots of dead wood and people who don't see things their way ... just to get to square one.

daveO's picture

Higher margin, snobbish customers? Amazon sells the same hard goods that I buy on Ebay and elsewhere, at consistently higher prices. I rarely buy anything there these days. I believe it's the pretentious, organic food customer that they are chasing.
Also, huge mergers always occur at market tops, they're essentially free to the buyer.

withglee's picture
daveO withglee Jun 16, 2017 3:00 PM

Higher margin, snobbish customers? Amazon sells the same hard goods that I buy on Ebay and elsewhere, at consistently higher prices.

I agree, and if you look at the difference between their "prime" offering with two day shipping, it totals to about the same a non-prime offering amounts to ... very very often.

I rarely buy anything there these days.

Nor do I. And I am beginning to find better sources than EBay like BangGood and Alice. It's got to be a really really rough business. I'm surprised logistics technology and optimizations haven't kept up. For example, why is all this stuff going into Amazon's warehouse. Why isn't it being dropshipped JIT by the manufacturers (or a packing and shipping service immediate to them).

Another example: someone can make major reductions in cost just by delivering to convenience stores as directed by the customer and let customers send and pickup from there. Sure there are some issues, but nowhere near the issues a driver has in making each individual handoff. And it would work out better for most customers anyway. Shippers win, long haul delivery services win, convenienc stores win, and customers win. It's right up there with pumping our own gas ... except in Oregon.

I believe it's the pretentious, organic food customer that they are chasing.

Well, it's worked for Starbucks all these years hasn't it. It works ... until it quits working.

Also, huge mergers always occur at market tops, they're essentially free to the buyer.

And you've probably seen their money costs are going up as they get downgraded for doing this "all cash offer" with OPM.

BoxHead1's picture

Amazon is better than FB microsoft even the old apple with Jobs presciently pushing small portable technology.

Facebook won based on their name and , initially, the game apps - I think it was a lot of luck and accident.

They tinkered the myspace formula, more pictures less music,  and had a much better name. But in the end it wasn't novel idea it's just freindster with better skins and format.

Amazon on the other had ... That is a truly great company. And i don't get paid to write that.(though I'd be happy to do it full time if a rep is lurking).

Fake Trump's picture

Why there are so many fat women in America? Over fed by whole food.

StanleyTheManly's picture

Must be the same reason there are so many fat men.

Fake Trump's picture

Hallah whole food blessed by Muslims. 

BoxHead1's picture

This is not spam. This should be my last today but I can't describe how much I love Amazon.

Easilly the best run most innovative company this century. Massive fanboy here. 

I can't help it. When viewed with clear eyes you can't help but love what they do. 

redtie's picture

I'm not sure I love amazon but I am sure I hate Walmart. Everything has change since walmart came into small town usa and wiped out the mom and pops. 

I still remember the way they advertized made in the usa and then completely hit the switch once they where the only choice. 

Death to walmart and the ebt tax base suckers that shop there.

you don't work you don't eat at my table. 

daveO's picture

It's not a coincidence that they are HQ'd in the Clinton's "home" state(a Rockefeller plantation) and expanded enormously as Bill was in office, giving away the country.

DEMIZEN's picture

i am not sure how is this bad news for a consumer?  

IENTJ's picture

This AMAZON deal shows great PRIDE!

https://youtu.be/uMkeiZXAW8I

doug209's picture

Now I'm thinking about the data collection potential of drone delivery.

They will have cameras and they will probably be landing in everyone's back gardens - it's gonna be like the next phase of google streetview.

yellowsub's picture

Walmart gets about $14 billion in EBT yearly.

This is take a chunk of that.  

sunkeye's picture

I do my best to NOT click Amazon, Twitter, & Facebook.

What good it is anymore, I'm not sure ...

FoggyWorld's picture

Try not to use Google because they are one of the 4 controlling every single thing we are up to.

Benito_Camela's picture

duckduckgo or Tor are good alternatives. 

scam_MERS's picture

DDG or Startpage - have both on my Opera Browser, with the free VPN turned on at all times. No ads, no tracking, it's great.

arby63's picture

Does no good probably. They are also on "auto pilot" with fake money. They provide ZERO but yet are huge. Hmm. 

ClickNLook's picture

Did they buy the whole foods or just 51% of ownership?

Peterman333's picture

 What happens if I want Lays, Coke, or Nestle?

Can't get name brands at WFM because of their granola holier-than-thou policy but many still like and buy mainline brands so either WFM will need to change that policy or it won't work with Amz grocery strategy. 

Benito_Camela's picture

Lays, Coke and Nestle are all childrens "food".  I actually hate Whole Foods, but I wouldn't buy any of that NWO corporate poison you just mentioned even if I was stocking my zombie apocalypse shelter. 

Peterman333's picture

And yet, many do, so how does Amz WFM accomodate that? The two don't match up, they going to sell out the Whole Foods culture? This should be interesting to watch. 

Eff them anyways, the Albrecht family get my grocery dollars.

scam_MERS's picture

+1 Damn Right. Aldi rules, WFM droolz!

decentralisedscrutinizer's picture

 

Why waste time on this alligator when the swamp’s most critical economic and political problems revolve around the hegemony of a global corporate cartel, which is headquartered in the US because this is where their dominant military force resides. The US Constitution is therefore the “kingpin” of an all-inclusive global financial empire. These fictitious entities now own the USA and command its military infrastructure by virtue of the Federal Reserve Corporation, regulatory capture, MSM propaganda, and congressional lobbying.

 

The Founders had to fight a bloody Revolutionary War to win our right to incorporate as a nation – the USA. But then, for whatever reason, our Founders granted the greediest businessmen among them unrestricted corporate charters with enough potential capital & power to compete with the individual states, smaller sovereign nations, and eventually to buy out the USA itself. The only way The People can regain our sovereignty as a constitutional republic now is to severely curtail the privileges of any corporation doing business here. To remain sovereign we have to stop granting corporate charters to just any “suit” that comes along without fulfilling a defined social value in return. The "Divine Right Of Kings” should not apply to fictitious entities just because they are “Too Big To Fail”. We can't afford to privatize our Treasury to transnational banks anymore. Government must be held responsible only to the electorate, not fictitious entities; and banks must be held responsible to the government if we are ever to restore sanity, much less prosperity, to the world.

 

It was a loophole in our Constitution that allowed corporate charters to be so easily obtained that a swamp of corruption inevitably flooded our entire economic system. It is a swamp that can't be drained at this point because the Constitution doesn’t provide a drain. This 28th amendment is intended to install that drain so Congress can pull the plug ASAP. As a matter of political practicality we must rely on the Article 5 option to do this, for which the electorate will need overwhelming consensus beforehand. Seriously; an Article 5 Constitutional Convention is rapidly becoming our only sensible option.

 

This is what I think it will take to save the world; and nobody gets hurt: 28th Amendment

 

28th Amendment:

 

Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to:

 

1, prohibitions against any corporation; a, owning another corporation; b, becoming economically indispensable or monopolistic; or c, otherwise distorting the general economy;

 

2, prohibitions against any form of interference in the affairs of; a, government, b, education, c, news media; or d, healthcare, and

 

3, provisions for; a, the auditing of standardized, current, and transparent account books; b, the establishment of state and municipal banking; and c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.

    

arby63's picture

Stop with yourself. This approach will never be recognized. Never. It doesn't apply all the time to every article either. Your'e becoming irritating. 

decentralisedscrutinizer's picture

And here you are; with all your charm, defending the status quo.

 

Angry White Guy's picture

It's obvious you are the one who can't read and comprehend.

Angry White Guy's picture

Please piss the fuck off with your copy / paste horseshit.  You're fucking annoying and like a broken record.

Your amendment isn't gonna work, either.

decentralisedscrutinizer's picture

You might be right. We may have to rewrite the US Const. at third grade level for your generation. Did you understand any part of it?

Angry White Guy's picture

Do you understand any part of it, dumbass?  You have no idea how old I am, but I can tell how old you are due to bringing up the generational semantics.  If you want to go there, it's YOUR generation that is responsible for this shit show of a country in the first place.

arby63's picture

I'm not sure about everywhere else in the country, but in the northern Midwest (including vast swaths of PA), all grocery stores are owned and/or dominated by Jews. Just sayin. 

Guyzz239's picture

Whew!  That is a good thing.  A bunch of goyim would be destroying everything.  

Guyzz239's picture

Gotta watch Dagos too. Almost as bad as the Jews.  lol

Occams_Razor_Trader's picture

Ever meet a NY Italian Jew? Woman of the mixed marriage are the most stuck up JAPS in the entire world (the Italian blood balances the Jew look though). And the male offspring are the cockiest mutha fuckers you'll ever met, but have little to back it up. Actually in some places in NY you can't tell the Jews From the Goombas.

bornlastnight's picture

Question:  Where does time fly fastest?

Answer:  In Italy.  Every time you look around, you see a dago.

Jack Oliver's picture

Pretty obvious that they want a dying - cancer ridden world population ! They do absolutely FUCKING nothing to make the world a better and healthier place !

Rothschild's new plan - " Give me control of the worlds food chain and I care not who is dies a miserable death "

Russia is resisting and plans to go completely 'organic' by 2020 !

Ukraine has 20% of the worlds ' black soil ' - That's why the Rothschild's 'agent' Soros got involved !

The 'food bowl ' of Europe ( Ukraine) is about to get FUCKING - GMO'd !!

Guyzz239's picture

Y'alll all know that the analysts at Shepwave are all jews.  Goldman is all Jews too.

But those Jews called the market moves so who really cares. 

their link for more Jews analysis https://www.facebook.com/166578775325/photos/a.10153488951800326.1073741827.166578775325/10154415124400326/?type=3&theater 

 

 

xantippa's picture

I can't tell if you are being sarcastic or not but the wave analyst has been calling every short term move in stocks oil and gold.

HushHushSweet's picture

THE DAY THAT WHOLE FOODS DIED: June 16, 2017

 

The news was not unexpected; there’d been occasional rumblings in the financial pages about Whole Foods having to tighten its margins to mollify unhappy shareholders, and a new company had come on board with the aim of streamlining and weeding out “low-performing” products. I myself had noticed a change in the store over the past year. The classic “cornucopia overflowing” impression that Whole Foods used to give as you walked through the front door had been replaced with a more pinched and orderly presentation of mainstream offerings that could be found in nearly every other supermarket, including Wal-Mart. In fact, the amount of “conventional” (i.e., poisoned) produce on display was overtaking the organic, and what little organic remained was no longer of the highest quality that had once been synonymous with the Whole Foods brand. Just as bad, the renowned customer service level had dropped noticeably in some locations. I sensed that something was afoot, and not good.

It used to be that I could walk into Whole Foods and check off my entire grocery list without worrying about buying inferior products. But just a few weeks ago, I ended up taking back EVERY PIECE OF ORGANIC FRUIT I had purchased at my favourite Phoenix location. It was, in a word, inedible. The grapes and “sweet” cherries were sour, the cantaloupe unripe, the melon and watermelon mushy, the strawberries white on the inside and the apples green. I had never experienced this level of poor quality in all my years of shopping at Whole Foods. Perhaps the changes had been so subtle that I hadn’t noticed them enough to question my continued loyalty to the store, but there was nothing subtle about Amazon’s takeover today.

Today, “Whole Foods” waved a white flag to its shareholders and gave the finger to its loyal customers.

Today, in my heart, Whole Foods died, and in its place a zombie version “Whole Foods” has arisen that sets profits above quality, mass appeal above exclusivity, mainstream above uniqueness.

The greatness that was Whole Foods is no more.

Whole Foods is no more.

I will burn all my Whole Foods bags in effigy and mourn what once was.

I will demote the zombie “Whole Foods” to the same level of grocery store as Trader Joe’s and Sprouts.

I will mourn and move on, knowing that there will never ever be another store as great in vision or as generous in spirit as Whole Foods once was.

I will support Amazon-owned “Whole Foods” only grudgingly and sparingly.

It is no longer the real Whole Foods.

“Whole Foods” is no longer Whole Foods.

 

R.I.P., you gentle, generous, grocery giant.

Benito_Camela's picture

Was this supposed to be sarcasm?

Whole Foods is no more.

I will burn all my Whole Foods bags in effigy and mourn what once was.

I will demote the zombie “Whole Foods” to the same level of grocery store as Trader Joe’s and Sprouts.

I will mourn and move on, knowing that there will never ever be another store as great in vision or as generous in spirit as Whole Foods once was.

Whole Paycheck is a joke - they are overpriced and they treat their employees like shit. But yeah, now you'll have to have Amazon deliver your $6 Asparagus Water. https://www.eater.com/2015/8/3/9090797/whole-foods-asparagus-water-wtf

 

 

 

silverer's picture

I want to source my food from Russia. No GMO crap in anything. Totally outlawed throughout the entire Federation.

Grandad Grumps's picture

Amazon massively overpaid. But what does on expect in a rigged market?

GRDguy's picture

TITLE is what the agents of The Great Red Dragon really want.

Who cares what it costs when free thin-air money is created to loan out.

All these large buyouts/acquisitions are steps taken to meet

their "goal to own the earth in fee-simple." It's so obvious now.

We Are The Priests's picture

Welcome to a small, but hopefully growing contigent who have figured this out.

Deplorable's picture

Nothing better than free groceries for the taking, delivered to your neighbors doorstep.