Documents filed by Whole Foods Market today with the U.S. Securities and Exchange Commission reveal new details about the $13.7 billion acquisition by Amazon.com, including the timeline of the deal, the presence of several other potential buyers and a window into Amazon’s negotiating style.
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In April, activist hedge fund Jana Partners disclosed it is the second biggest shareholder in Whole Foods with a nearly 9 percent stake. The fund wanted Whole Foods to shake up its business or explore a sale. This got the ball rolling on what ultimately became Amazon’s biggest acquisition ever and a move that is sure to shake up the grocery industry.
Also in April, company executives discussed reports that Amazon had previously considered acquiring Whole Foods, and a consultant offered to make an introduction between the two companies. At the same time, another company, referred to as “Company X” in the SEC filing, had reached out about “exploring strategic opportunities.”
The first contact between Whole Foods and Amazon came on April 21, when the consultant reached out to Jay Carney, Amazon’s senior vice president of corporate affairs and former White House press secretary, to set up a meeting. The two companies met in Seattle on April 30, where Amazon CEO Jeff Bezos, Whole Foods CEO John Mackey and other senior representatives were present. That meeting did not lead to an acquisition proposal, nor did the sides discuss a potential price.
On May 4, Amazon and Whole Foods met again, this time in Whole Foods’ hometown of Austin, for a full-day due diligence session.
Four days after the second meeting with Amazon, Whole Foods received a letter from another company, referred to as “Company Y” in the filing, about a “potential business relationship.” Later in May, on a call with Whole Foods, Company Y suggested exploring a partnership for something like a supply agreement, but a merger was not discussed.
In mid May, Whole Foods met with Company X, where that firm proposed a “merger of equals,” valued at $35 to $40 per share. Such a transaction occurs when two companies of similar size come together to form a single company, rather than an acquisition where one company buys another.
After several follow up conversations between the two firms, Amazon made its first offer to acquire Whole Foods on May 23 at the price of $41 per share. At the same time, Amazon warned Whole Foods that it would withdraw its offer if the grocer attempted to start a bidding war, or if word of the negotiations got out to the press.
“Amazon.com had re-emphasized in multiple communications that Amazon.com would not be willing to further engage with the Company in the event of a rumor or leak of a potential transaction,” according to the document.
Following Amazon’s initial offer, Whole Foods countered at a price of $45 per share. Amazon said it was willing to pay $42 per share, and that was its final offer. The Whole Foods board gave the go ahead on June 1 to negotiate a sale at $42 per share, a 27 percent premium over the stock price the day before the sale was announced. The two sides spent the next two weeks ironing out the details, and executed the merger agreement on the evening of June 15. The next morning, the two sides announced the deal, sending the internet, Wall Street and the grocery industry into shock.
The documents don’t give any hints as to the identities of the other firms Whole Foods was talking to, Company X and Company Y. The filing makes it sound like those companies are players in the grocery industry, but it is not completely clear. Walmart has been floated as a rival bidder, but Reuters recently reported that the retailer was not interested in wresting control of Whole Foods away from its chief rival Amazon.
In addition to the mysterious bidders, Whole Foods also received overtures from four private equity firms, but the board decided not to engage with the equity firms because they were worried about leaks that could potentially blow up the Amazon negotiations.
The merger is expected to be completed later this year, with a deadline of Feb. 15, 2018, and the option to extend to May 16.
If the merger falls apart, Whole Foods could be looking at a big debt to Amazon.com. If the shareholders don’t approve the deal, Whole Foods will have to pay Amazon up to $25 million. If Amazon cancels the deal due to the Whole Foods board turning against it, or Whole Foods accepts a bid from another suitor, Whole Foods would have to pay Amazon $400 million.
The deal represents Amazon’s most ambitious expansion yet into brick-and-mortar retail. Whole Foods, which started in Austin, Texas in 1980, operates 465 stores in North America and the United Kingdom.
In addition to acquiring physical stores, Amazon just boosted its headcount by a whopping 67,000 employees. At the end of the first quarter, Amazon employed 351,000 employees.