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Amazon Goes Shopping for Whole Foods

Jun 19, 2017

While noteworthy, Wal-Mart’s purchase of menswear online seller Bonobos for $310 million was far from the largest retail acquisition of June 16. In a move that has sweeping implications for the retail grocery landscape, Amazon acquired Whole Foods for $13.7 billion in an all-cash transaction. The deal, Amazon’s largest to date, works out to $42 per share, which is a 27% premium over the day’s closing price. Amazon also takes on all of Whole Foods’ debt. Amazon’s market cap is currently an impressive $460 billion.

The deal sent shockwaves through the grocery sector as Supervalu, Costco, Wal-Mart and Target shares all fell. Kroger, once thought to be a one-time partner for Whole Foods, also saw its share price decline.

Amazon has been looking at different ways of entering the annual $600 billion U.S. grocery market. It launched the AmazonFresh grocery delivery business and later Amazon Go, which features cashier-less locations. The deal allows Whole Foods to benefit from Amazon technology, whereas Amazon gets more than 460 bricks-and-mortar locations to help execute and expedite its go-to-market strategy for Amazon Go. It is also another salvo in Amazon’s battle with Wal-Mart for retail supremacy.

With 30 million customers and 87,000 employees, Whole Foods had revenues of $15.7 billion in 2016 and $1 billion in operating cash flow. However, it had closed 9 stores recently after several straight quarters of decreasing sales. This prompted Jana Partners, who took 8% ownership in Whole Foods in April 2017, to push for a merger or sale. 

Whole Foods, sometimes jokingly referred to as “whole pay check” due to its pricing model, gives Amazon access to an affluent demographic. John Mackey will remain CEO of Whole Foods, and the company will maintain its Austin, Texas headquarters, where it has been since 1980. The deal expects to close during the latter half of 2017.

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Richard R. Colloca

Richard Colloca, is an Audit Partner and National Food and Beverage Practice Leader, member of the firm’s Manufacturing and Distribution Group as well as a member of the firm’s Profession Practice Group providing audit, accounting, tax and business consulting services to clients.

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