Amazon will acquire Whole Foods Market for $13.7 billion, marking the Seattle-based tech giant’s most ambitious expansion yet into brick-and-mortar retail.
It’s the largest deal in Amazon’s history, many times the $1.2 billion that the company paid for online retailer Zappos in 2009. The purchase price represents a premium of about 30 percent over Whole Foods’ market value of $10.5 billion based on the retailer’s last closing share price.
No layoffs are expected to result from the acquisition, according to a source familiar with Amazon’s plans. That could be a relief to Whole Foods employees who might look at the deal with the tech giant and envision their jobs being replaced by robots. That doesn’t appear to be the case, at least not in the foreseeable future.
Amazon has until this point developed its own brick-and-mortar bookstores across the country, and tested grocery concepts with two AmazonFresh Pickup sites and the experimental Amazon Go store in its hometown. Amazon has also rolled out the AmazonFresh grocery delivery service across the country.
“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 Amazon CEO Jeff Bezos in a news release announcing the acquisition agreement. “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.”
Reading between the lines of Bezos’ statement, Amazon is signaling that it doesn’t plan to disrupt what Whole Foods is doing with a major shakeup of the retailer’s infrastructure or strategy in the near term. Amazon has a history of allowing acquired companies — from Audible to Twitch to Zappos — to continue operating with relative independence, with some product and feature integrations.
The announcement adds, “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.”
Amazon referred to Whole Foods internally by the code-name “Walnut” to help maintain secrecy during the negotiations, according to financing paperwork filed with the Securities and Exchange Commission.
Whole Foods has experimented with in-store technology through its “365 by Whole Foods Market” concept, including speedy checkout and digital price tags, but its new coupling with the tech giant would take things to a different level. It would be easy to imagine existing Amazon services such as the Prime membership program and Fresh delivery service integrating with Whole Foods’ infrastructure, but Amazon isn’t tipping its hand for now.
The deal, expected to close in the second half of this year, is a shocker to many in the retail business, but maybe it shouldn’t have been: In April, Bloomberg News reported that Amazon considered an acquisition bid for Whole Foods in the fall of 2016, but the tech giant ultimately declined to pursue a deal at that point, according to the report.
The deal comes the same day as Walmart announced plans to acquire online apparel company Bonobos for $310 million. The deals show Amazon moving to increase its brick and mortar blueprint, while Walmart is simultaneously beefing up its e-commerce operation.
After seeing its market value fall by more than half in recent years, Whole Foods was reportedly under pressure to sell from New York hedge fund JANA Partners, which holds a 9 percent stake in the retailer. A story in Texas Monthly magazine, published before the acquisition was announced, quoted Whole Foods CEO Mackey saying that the situation was a “morality play between conscious capitalism and greedy, short-term financial capitalism.”
— Carl Quintanilla (@carlquintanilla) June 16, 2017
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The acquisition “puts grocers on notice that Amazon is going to be a serious and formidable player on the grocery business,” analyst Mickey Chadha of Moody’s said in a statement this morning.
“As other brick and mortar retailers have come to realize the hard way that competing with Amazon is a formidable challenge, supermarkets will now have to contend with not only competition with each other and non-traditional grocers like Walmart and Target, but with a retailer like Amazon which has the financial capacity to price aggressively, and the smaller regional supermarket chains and independents will bear the most pain,” Chadha said. “We expect this transaction to further accelerate the consolidation within the supermarket space.”
The acquisition gives Amazon a massive physical retail footprint. 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.
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Amazon shares are up more than 3 percent in early trading this morning. CNBC explains why that means Amazon will be essentially buying Whole Foods for “free.” Whole Foods shares jumped more than 27 percent to match Amazon’s $42/share acquisition price. UPDATE: Interestingly, shares of Whole Foods are now trading above the $42 offer price from Amazon — at about $42.60 — on speculation that another bidder possibly could emerge.
In its most recent fiscal year, ended in September, Whole Foods posted $15.7 billion in net sales and profits of $507 million. Amazon’s annual net sales for 2016 were $136 billion, with profits of $2.4 billion.
News release below. Stay tuned to GeekWire for continuing coverage.
SEATTLE & AUSTIN, Texas–(BUSINESS WIRE)–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.