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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RichardParker's picture

Pretty easy to see where Bezos/Amazon is going with this.  LOL

The next aquisition will be a defense company.

Only a matter of time till they acquire something like Lockheed Martin, Boeing, General Dynamics, Raytheon, Northrop Grumman, United Technologies, or Level-3.

 

 

HK21E's picture

Not sure why Amazon thinks this is such a great deal for them. Whole Paycheck sucks monkey ass as a grocery store. Grossly overpriced bullshit for hipster trendy faggots that perceive themselves to be superior to everyone else, based solely upon the fact that they pay more for items to stuff their pieholes with.

Bezos is just another social justice dickwit that got lucky. Another Bill Gates / Mark Suckerberg -type .01% fraud. 

Deplorable's picture

Don't worry...Their high end trendy inventory will soon be replace with cheap generic junk food just like the other big box stores.

Goodbye health foods, hello GMO's.  

DaveThomas's picture

Why is it every time I hear the name Bezos, I see Charlie Runkle from Californication pounding it at his desk?

http://www.apedonkey.com/wp-content/uploads/2012/01/Picture-10.png

Miss Informed's picture

What, they gonna deliver $300 a cart groceries by UPS?

northern vigor's picture

$300 at Whole Foods would be about two carrots and a small cheese, maybe a gluten free dinner roll thrown in.

surf@jm's picture

Amazon owning a grocery store huh?.........

And from what I read, the CIA owns Amazon.....

I wonder what new food additives will show up in Whole foods products?.......

LSD wonder bread?.........

ThrowAwayYourTV's picture

The Monster must eat to continue growing.

https://youtu.be/Won6fiIHJBQ

Let it Go's picture

When it comes to Amazon I am not a fan. Because of how it disrupts local economies I strongly urge people to consider what kind of community and society they want in coming years before jumping on the Amazon bandwagon.

Amazon excels in creating illusions that fail to hold up under scrutiny. For all the praise many people and politicians heap upon small business they are often quick to cut the very throat of the creator of much of our wealth and jobs. In the article below are fifteen reasons why Amazon is not the answer to a better future for America.

http://brucewilds.blogspot.com/2017/04/amazon-is-not-answer-to-creating-better.html

pavman's picture

Who shops at whole foods?!  I'm just glad they didn't buy Trader Joes or Caputos.  Too much merging not enough trust busting over the last 20 years, imo....started with the dam banks and look where that ended....waaah too big too fail....waaaah save us!!! Fuck dat shit.  Break up anything with over a billion dollar market cap.

GaryInTexas's picture

Ah yes...Bezos. The online retail whore selling goods from China and disguising them as in America. Bezos the deceiver running his WaPo acquistion manufacturing fake news by the bushel. And now the ever greedy Bezos financing a major purchase (up to it's ear in debt) with no money. And now worth over 80 billion he is asking for ideas for philanthropy. Really! What a brilliant bastard!

StreetObserver's picture

Remember,

"AssWhole Foods"

"Whole Fools"

"WalFoods",

destroying your local authentic local health food or organic grocery stores.

 

chilller's picture

The manner in which amazon treats its employees and vendors....I doubt this adventure will succeed. Prolly why they want to use delivery drones and robots because they have no feelings. Only the young and desperate work at the Amazion...

kavabanga's picture

It's could be a great retracment on AMZN. I'll try to short from the current ?rice med term.

https://www.tradingview.com/chart/AMZN/fJHXS6MZ-Amazon-Short-long-Term/