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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Hitlery_4_Dictator's picture

Sweet, one world currency is coming soon....

BaBaBouy's picture

Here We Go..... Amaz Taking Over The Whirld...

Next, they will mint their own Crypto... Got Amazoncoin ?

Squid Viscous's picture

this is their jumping the shark moment, buying some puts at the open

Zero_Ledge's picture

Another shadow of the dot com boom.  I can't remember what it was called, maybe Grocer.com?

This may be the top for the whole market. This is total bullshit "news". People shouting about disruption, grocery deflation, etc. Last I checked it's a very low margin business to begin with. My local Kroger-owned stores already partnered with Click List for online ordering, including either delivery or pick-up at the store.  They also have automated checkouts.  No drone delivery though.  I guess that's Bezo's magic difference, lol.

 

Squid Viscous's picture

webvan.com comes to mind, think they had a 10 billion mkt cap at some point.

and a strong buy from Henry "POS" Blodgett and Mary Meeker

HenryKissingerBilderberg's picture

the youtube videos of the robotics backbone moving the fruits are going to be KEWL !!!

*some people might get fired though. YMMV

jcaz's picture

'Bout time for Bezos to come under some monopoly scrutiny-

Remember how people were freaking out about Apple's "monopoly" a few years ago?  That's comical in light of what Bezos is doing......

Took Red Pill's picture

HA! MSN Money & Jim Cramer were just recommending people but Kroger stock two days ago. One reason; they might but Whole Foods. Some experts!

http://www.msn.com/en-us/money/topstocks/kroger-stock-is-your-shield-aga...

Déjà view's picture

Looking forward to ORGANIC PIRANHA...

PrayingMantis's picture

... now, the rapefugees (aka organic piranhas ;) could order their groceries from Amazon.com.au ... >>> "Australia now officially pays illegal migrants $35,000 to move to their country"  >>> http://www.eutimes.net/2017/06/australia-now-officially-pays-illegal-migrants-35000-to-move-to-their-country/ ...

;)

Shitonya Serfs's picture

Amazon, the everything store. Amazon, the government store.

Enjoy comrades.

adanata's picture

More true than you know; "Whole Foods" is onboard with the NWO, GMO, hidden labeling and other poison "food"... all under the fake 'organic' banner like USDA "organic". Wouldn't touch it with a ten foot pole...people who are serious about organic are VERY careful and limit what they buy at Whole Foods. Moreover, Amazon has a bad track record for fake nutritional supplements too.

DollarMenu's picture

Ties in well with Amazon's $600 million cloud computing/collecting contract with the CIA.

They'll get you covered all over.

Lore's picture

Whole Foods is totally uncompetitive. They don't advertise, but I've comparison-shopped every single thing that I buy regularly, and it is impossible to save a dime by shopping at Whole Foods. Every single item at Whole Foods is overpriced -- often ridiculously so!  People who shop at Whole Foods must either be so stupid that they don't have a clue, or they're so rich that they don't need to give a shit.

If they go with the NWO cash-less model, that's just the nail in the coffin. To hell with them.

Abbie Normal's picture

Heirloom tomatos are $8/lb at Whole Paycheck and less than half that at the local farmers market.  And at least you know the farmer grew their own, WFM's product could have come from as far away as China.

peddling-fiction's picture

Give organic GMO's a chance, will ya.

WTFRLY's picture

This is no longer reality

swmnguy's picture

As always, if you want to end up with a million bucks, get $10 million and follow Cramer and Gartman.

JRobby's picture

Way past time for anti-trust scrutiny. But that can be said for many "mergers and acqusitions" for the past 20 years.

 

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

Epic ass hammering

Golden Showers's picture

Thanks for the vid JRobby.

I worked in Cincinnati at an IHOP and there was this dude Phil, right. Only white boy besides me and the brothers couldn't tell us one from the other. They would call Phil "Colins" and me "Phil". Then it was Phil Collins for both of us. Anyways, Phil worked at Whole Foods. This is way back. And he learned that WF sourced non organic deli items and he started telling his custormers. He was fired. This dude believed and watched in horor as 20 years ago WF lied and lied and lied and made the biggest rips ever. Fuck Whole foods. I've never spent a cent there and Amazon can suck a fuck.

MisterMousePotato's picture

That black woman is shoplifting.

DEMIZEN's picture

:) lol he is just entering grocery business how can he be charged with monopoly?  i am not sure what is the obsession with bozos, he is just a competition to another retailers and competition is good. i am talking as a consumer of course.

AllOfGood's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

JRobby's picture

Astonishingly, prices seem to go up weekly now. 5%, 10% and higher. Something, as they say, has to give.

NidStyles's picture

Nope, no monopolies here. Jews can't own monopolies, because of the holy hoax....

debtor of last resort's picture

Wait until Amazon buys Monsanto and the FED adds Amazon stawks dude.

Circle completed. And if you're black, please report to section 17

Mr. Universe's picture

Bayer has already scooped up Monsanto is approved. Amazon will end up owning Seattle as it becomes one of the corporate city states, just like in Rollerball.

Zero_Ledge's picture

Ah yes, webvan.  Thanks. I think there was another one called netgrocer or something.  It's hard to remember that last "disruption" from SEVENTEEN years ago.

In any case, I'm sure Target, Walmart and Kroger will all just roll over and quit.  It's not like they have any online order and delivery capability.  Oh wait.

The other bullshit I don't understand at all is the claim that AMZN will drive down prices.  Whole Foods is at the highest end right now?  WTF?

Hikikomori's picture

Pick an item - any item - then try to buy it online from both Walmart.com and amazon.com - it's an interesting thing to try.

Robert Trip's picture

Try getting up off of your ass and walking to the store.

buzzkillb's picture

Some items are a lot cheaper on AMZN. For instance something we buy quite a bit of, is Prime Free same day. Which I order at 11pm, and it gets here at 9am. And its cheaper than walking to the store. How? I don't know and AMZN is still around. Sell at a loss, making it up in spying is my only logical conclusion.

Whole Foods around here sells so much rotten/expired stuff that we stopped going there.

swmnguy's picture

Well, Target doesn't have a whole lot of online order and delivery capability.  Their website is utterly horrible.  Hell, Target can barely get stuff from the back room to the shelves, they've slashed so much labor in the stores.

In hindsight, one of TGT's worst mistakes was breaking with Amazon years ago.  They had partnered with AMZN on TGT's online system, but then decided AMZN was competition, and also thought they could do online better all by themselves.  They were as wrong about that as they were when Chase offered them $18b or so for all their store-branded VISA cards around 2006.  They ended up selling the same portfolio of cards to Chase for about $3b in 2009, I believe.  TGT's trying to move in to Canada after previous management had researched it thoroughly and decided it was a debacle-in-waiting, and then TGT's trying to get into grocery were also potentially business-killing mistakes.

You don't usually get 4 colossal blunders in business and survive.

If Whole Foods gets access to AMZN's seemingly endless ability to burn cash, maybe they can cut prices enough to peel off those who won't go there because of the prices.  Like myself.  I go to the regular groceries in my area; occasionally to a high-end grocer for specific items, and to the local food co-op down the street for bulk or exotic health-food type ingredients once in a while.  The co-op is probably almost as over-priced as Whole Foods, but the parking lot is much easier to deal with.  Plus it is in walking or biking range and that's even easier.

 

ejmoosa's picture

Why Whole Foods?  They have a smaller footprint than Kroger.  And if they plan to dominate, they need to have the best loactions.  Whole Foods has a unique product mix.  Most of America buys what is at Kroger, Wal-Mart, etc.

WHole Foods is going to start carrying Heinz and Kelloggs now?

Drimble Wedge's picture

Yeah but, Kroger is already fully owned & operated by jews.

 

Whole Foods wasn't, until now. Patty Elstrott (wife of Whole Foods Chairman) is a jew, and now they sold to (((BEZOS)))

 

All in all it's just another brick in the wailing wall.

City_Of_Champyinz's picture

blah blah jew, blah blah jew, blah blah blah.  You are such a simpleton schmuck.

Drimble Wedge's picture

What's true is true. Truth never needs to be hidden from sight.

 

Yeah maybe, as you say "blah blah jew, blah blah jew, blah blah blah.  You are such a simpleton schmuck". ~ You have me ALL FIGURED OUT based on one comment, that stated two FACTS.

 

Maybe some would prefer if you had some real insight to add to enrich the discussion.

City_Of_Champyinz's picture

LOL insight.  Your idiotic comment was as far away from insight as it gets shit for brains. What a shocker, yet another 2 week ZH commenter.  Fools like you are making the comment section more and more worthless.

Drimble Wedge's picture

So I guess it requires at least 2 years to master the fine art of 'ad hominem' comments that serve only as personal attacks but do ZERO to address the issue at hand.

 

I'm a fast learner, but, alas, I doubt I'll ever achieve your level of mastery at that no matter how long I linger.

 

You said ~ "Fools like you are making the comment section more and more worthless."

 

What, in your opinion, would be the sort of comments (besides your own of course, that were the work of the vast pool of  PURE INSIGHTFUL GENIUS that you undoubtedly possess along with your fluency with 'Idiocracy' style ebonics that you used to conjure your USERNAME, & whereby, I presume U-P-G-R-A-Y-E-D-D with a double dose of pimpin' was already taken), that would make the comment section WORTH MORE ~ & thereby, SAVING the Tyler business model, which is, based upon your POV, clearly in jeopardy?

 

Here's your chance to become a GYRO Happy Meal with some Brawndo & Big Ass Fries

City_Of_Champyinz's picture

Ebonics?? What the fuck is your ignorant ass ranting about?  Are you on hard drugs?

You are just the latest racist conspiracy theory nutcase here, nothing more. A true SIMPLETON idiot furiously typing away in mom's basement, attempting to be relevant.  I have no respect for douchebag racists, simple as that dumbfuck.

Drimble Wedge's picture

I'm still waiting for anything relevant to add to the discussion other than

 

- simpleton schmuck

- racist conspiracy nutcase

- idiot in mom's basement

- douchebag racist

- dumbfuck

 

Did I miss anything?

 

On the subject of 'ebonics' ~ Do you care to elaborate on your use of the the term 'Champyinz'? I can't find it in any of the dictionaries I grew up with.

 

Is that something that comes right before 'covfefe'?

City_Of_Champyinz's picture

hahaha, first of all WELCOME TO FIGHT CLUB.  Sorry for injuring your sensitive clitoris.

Since you are too stupid to use google, I will explain the play on words.

I am from Pittsburgh, PA.  AKA The City Of Champions.  In the local dialect, we do not say 'Y'all' like they do in the south, we say 'Yinz'all'.  When you combine Champions with Yinz, you get Champyinz. 

Now you can go back to your jew hating.

ZeroLounger's picture

Francis!!! I recognize your typing style...

J Pancreas's picture

I love Francis! His original avatar with the kid with his dukes up always let me know a good rant was coming before i saw the screen name.

caconhma's picture

Very few can take truth.

Let us be honest. Trump Presidency is over. One cannot be a Commander-in-Chief by being a coward. So far, Trump was Bla, Bla, Bla, they are not fair to me, Bla, Bla, Bla, and no beaf. Disgusting!

Just imagine a combat general whose lieutenants excuse themselves from combat duties when things are getting tough.

gimme soma dat's picture

Kroger employees are unionized

Abbie Normal's picture

"Why Whole Foods?  They have a smaller footprint than Kroger."

Because there's no profit in delivering a $2 bottle of Heinz ketchup, but there is when delivering a $7 bottle of organic WF ketchup.

SixIsNinE's picture

maybe they (bozos))))) has a "feeling" that Kroger stawk will go down  - and they will buy it on the Dip,   bitchezzzz

he might get an inside tip from a Cloud :)