Amazon Buys Whole Foods

Amazon . AMZN -1.26% com Inc. said it would buy Whole Foods Market WFM -6.74% for $13.7 billion as the giant internet retailer makes a deeper push into the grocery space. Amazon is buying Whole Foods WFM -6.74% for $42 per share, valuing the grocer at a 27% premium to its closing price Thursday. https://www.wsj.com/articles/amazon-to-buy-whole-f...
There have been rumours that amazon may acquire a retailer for quite some time but this is huuuge. Do you think going offline is a natural step?

Comments (82)

Jun 16, 2017

Amazon is probably buying location. Whole Foods are mostly located in high density or high income areas. $13.7B seems about right to me.

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Jun 16, 2017

Anyone know who worked on this deal?

Jun 16, 2017

"The deal will be financed partly through debt with Goldman Sachs and Bank of America Merrill Lynch funding the transaction."

    • 1
Jun 16, 2017

Source?

Jun 16, 2017

It seems Evercore advised Wholefoods and Wachtell being legal advisor.

    • 1
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Jun 16, 2017

Amazon wants to be like Walmart. Walmart wants to be like Amazon go figure.

    • 10
Jun 16, 2017

Amazon wants customers to buy more groceries online.

Jun 16, 2017

From Amazon's perspective, I don't hate this move, but I don't love it either. Amazon believes it can use the grocery business as a "gateway drug" to its Amazon Prime subscription/account, which is the "gateway drug" to buying [name practically any product] on Amazon. It's an interesting thought that could payoff. But the grocery business is the LAST BUSINESS ON THE FACE OF THE EARTH that I would have any interest in getting into--the profit margins are horrendous, utterly horrendous. I could almost see Apple getting into something like this because Apple has literally more cash than it knows what to do with (something like $250 billion). Amazon, on the other hand, has $20 billion, which is really good, but it isn't enough--in my view--to spend a great deal on getting into a very low margin business.

Jun 16, 2017

The profit margins are poor, but Amazon has a huge logistics advantage that they'll leverage to improve those margins.

Given Amazon's retail (grocery and otherwise) ambitions, this is a fantastic price for a collection of real estate that would be prohibitively expensive to reproduce.

Also, if you think about the mix of customers who buy at whole foods vs. [cheaper grocery store here], those are probably the same customers who already are heavy users of Amazon and would be open to moving more of their grocery activity online. The strategic overlap is genius.

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Jun 16, 2017

+1, it will be sooooo much easier to implement those self-check out stores everywhere.

Jun 16, 2017

Is it genius? Low margin industry + delivery does not equal in my mind a hugely profitable business. On the surface it looks like Amazon will spend a disproportionate amount of executive talent and personnel focusing its efforts on an industry that, frankly, is not a cash cow. If I were Amazon, I'd spend my precious human capital on high margin businesses.

Whole Foods had $15.7B in sales and made $500M in net income. So what if Amazon doubles sales and doubles margins? For a company its size, the potential profits Amazon could yield from this business are not worth the outsized effort.

Jun 16, 2017

Sorry, it's another brilliant move by Bezos. Amazon is crushing industries orthogonal to its' original focus, and retailing is Amazon's core competency.

Most interesting video I've seen in a very long time. Sample stats:

  • Since 2010, Amazon has added $64 billion in top line revenue growth, or the equivalent of Nordstrom, Macy's and Sears combined.
  • 52% of households in the U.S. have Amazon Prime subscriptions.
  • $4.5 billion is AmazonStudios content budget for 2017, or more than every other major media player (HBO, ABC, NBC) except Netflix
  • Amazon is the most preferred DSP (demand side platform) among digital advertisers, beating Google's DoubleClick & AppNexus
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Jun 16, 2017

Great post + SB

Jun 24, 2017

1) Nordstrom, Macy's, and Sears are all dying companies. Name a different store that wasn't recent blown up near my high-rise? (Thank you for messing up my paintings whoever you were)

2) True. Amazon gave it away for free. I'm not a believer and I have Amazon Prime. Nice service. They'll be able to keep those 2% operating margins going!

3) Bragging about a pro-forma spend is like bragging about a credit card bill. They've underwrote multiple Comedy specials without much return. We'll see.

4) I believe that. Reason FB is popular. That's not their growth strategy.

Jun 16, 2017

I fuckin love gateway drugs bro. Alcohol, ciggies, pot, that shit is all cash. Now that you put it like that I'm on the AMZN bandwaggon. They make cut-offs?

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Jun 16, 2017

Looking forward to getting my kale and quinoa delivered by drone.

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Jun 16, 2017

Didn't John Mackey claim he would never sell "his baby" recently?

Jun 16, 2017
SketchAutist:

Didn't John Mackey claim he would never sell "his baby" recently?

Literally yesterday.

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Jun 18, 2017

For $15 billion, you can have my baby, my house, my wife, my car... hell you could probably put on a 12" strapon and I'd ask you whether you wanted to use lube or not.

Everyone has a price.

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Jun 16, 2017

Jeff Bezos has a plan. Trust the Process. #Bezos2020

    • 2
Jun 16, 2017

@consultingchick02 I agree with the above statement.

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Jun 16, 2017

He's already got a house in DC for it.

Jun 18, 2017

Jeff Embiid. #TrustTheProcess

'I'm jacked... JACKED TO THE TITS!!'

Jun 16, 2017

I am trying to start a deal tracker for recruiting purposes and this feels like a great deal to start on. Where would I find the relevant info e.g. who is advising on the deal and such? I know GS and BAMYL are funding but where would I find that type of info easily

Jun 16, 2017

Amazon didn't use an advisory banker according to WSJ

Jun 16, 2017

In Whole Foods' 8K filing on the last page you'll see that Evercore was the advisor.

Jun 16, 2017

Not sure if this helps, but it's worth looking into - http://pillarsofwallstreet.com/resources/deal-of-t...

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Jun 16, 2017

Use EDGAR they have a mondatory disclosure with all needed info there, actually you can sometimes find even real-life IB and MBB presentations there as part of some disclosures. For example

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Jun 16, 2017

I'm super on-board with grocery delivery if they make it price comprable to going to the store.

heister:

Look at all these wannabe richies hating on an expensive salad.

https://arthuxtable.com/

    • 1
Jun 16, 2017

I just think the concept is absurd on its face, not because it won't work but because of what it says about our society. Have you ever seen so many people so "busy" yet accomplish so little? We're eventually going to sit on our fat asses all day, going nowhere, having robot drones deliver us whatever we want. I'm no Luddite, but in my mind this portends a dystopian future.

By the way, I tried the Harris Teeter street side pick-up. It was ok, but, frankly, I like going to the grocery store and seeing stuff that I might not otherwise see and diversifying my selections.

Jun 16, 2017

I agree in theory, but not for myself. I would love groceries delivered and I think a lot of people agree. Going to the grocery store isn't my daily physical activity. I commute by bike an hour a day, I walk an hour a day, I work out, etc. Doesn't matter. Point is, I have a lot going on, my health is in check, and I would love to spend that hour relaxing with my wife instead of buying produce.

heister:

Look at all these wannabe richies hating on an expensive salad.

https://arthuxtable.com/

    • 1
Jun 16, 2017

My reaction to this move is "Meh." To echo whats been said above I strongly believe Amazon is one of the best when it comes to logistics and overall supply chain management (as an SCM major I believe without a doubt companies live or die by how they manage this). From this standpoint I have no problems or lack of faith in their ability to execute food/grocery delivery services.

Does Whole Foods make sense? Yes in the sense that it appeals to the younger crowd of people who want wholesome foods and are willing and able to pay a premium for it.

Were there other options on a smaller scale? Absolutely!

I'd like to know why they didn't consider a Sprout's or Trader Joe's? Sprout's is a smaller version of Whole Foods and would have allowed Amazon to accomplish its goals on a smaller scale. Trader Joe's would've done the same and acrries its own brands that has brand loyalty and appeals to hippsters/younger folks.

ALDI would've been interesting as well although it has a unique business process vs other grocery chains. I'm not an expert in this area but would love for someone to chime in.

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Jun 16, 2017
RedRage:

Does Whole Foods make sense? Yes in the sense that it appeals to the younger crowd of people who want wholesome foods and are willing and able to pay a premium for it.

Were there other options on a smaller scale? Absolutely!

I actually agree with you that I'm no sold on Amazon going with Whole Foods over some other grocery brand. Whole Foods is already under pricing pressure for premium foods (it's no longer the only player in town). Add in variable and fixed costs for delivery and I just don't see how it can be an affordable product for the consumer.

Jun 16, 2017

Sprouts is probably going to merge with Albertsons so I doubt they were on the table for Amazon.

Jun 16, 2017

Aldi owns Trader Joe's.

Jun 20, 2017

Aldi owns TJs (as you said), is expanding like crazy, has been a private co forever, and is focused on fighting off Lidl in the US......not an ideal candidate in any way.

I'm not sold on this move, but I do think Whole Foods was the right target for Amazon. A premium brand in higher end locations, thats at a ~50% discount from 2 years ago.

twitter: @CorpFin_Guy

Jun 16, 2017

Amazon, take my money

Jun 16, 2017

This could be interesting from a CRE Leasing standpoint. A corporate guarantee from Amazon on a shopping center could be huge.

Jun 16, 2017

Probably smart for Amazon since they'll have a lot more floor space and warm bodies to test out new robot lines. But awful for Whole Foods and all the hippies that rely on it

Oh Whole Foods, farewell old friend. We already knew ye.

Jun 18, 2017

So.... you're a Whole Foods reliant hippie?

Jun 18, 2017
iBankedUp:

So.... you're a Whole Foods reliant hippie?

No, I go to Fairway Market...it's like Whole Foods, but for yuppies, and it won't be gobbled up by Amazon

Jun 17, 2017

Hopefully this is the last time somebody overpays for whole foods

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Jun 20, 2017

heh
heheh

heister:

Look at all these wannabe richies hating on an expensive salad.

https://arthuxtable.com/

Jun 18, 2017

Whole foods has dozens of thousands of employees. I've only seen one comment here about the Amazon Go store. I think that's the difference between a finance forum and a tech forum. No one here could anticipate the growth the AMZN because no one here understands the business and level of impact potential (nor do I).

I'm long on this. At the very least, AMZN could cut down on labor costs enormously and that drives down COGS with their automation software.

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Jun 19, 2017

Amazon is probably the most fascinating company I've witnessed, yet it's my recurring nightmare because I was indoctrinated to believe in PE ratios.

as a consumer, I think Bezos will pull it out. grocery margins improve dramatically with logistical efficiency and if they truly do away with cashiers, plus even though not everyone is busy, people love convenience, and if Bezos can capitalize on that, power to him (capitalism ftw).

as an investor however,, I still can't stomach it. I think I'll have my opportunity again, they seem to take a dive every 2-4 years.

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Jun 20, 2017

Some guy on ZH hears echoes of AOL/Time Warner in this one:

[I can't post the URL as a new user - apparently I am a spam risk. Anyway, it's titled, "Is Amazon/Whole Foods This Cycle's AOL/Time Warner - A Sign That The Party's Over?" on ZeroHedge]

Can't say I disagree 100%.

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Jun 20, 2017

good point & great name

heister:

Look at all these wannabe richies hating on an expensive salad.

https://arthuxtable.com/

Jul 18, 2017

Yes of course. It is the right choice for groceries to be hold by the concern.

Jul 18, 2017

yeah a stockholder of Amazon would then own that same amount equity in whole foods. But you wouldn't usually expect Amazon's equity value to go up by the amount of the acquisition since they are still giving up a ton of cash and/or taking on debt to do the transaction, which both take away from potential dividends to shareholders. so theoretically I think you would expect the value added to come from synergies (assuming they paid a "fair" price for whole foods), and I guess investors believe that the potential synergies in this deal are worth at least 13.7B (or they think whole foods was undervalued)

Jul 18, 2017

Already a discussion going on about this https://www.wallstreetoasis.com/forums/amazon-buys...

Jul 18, 2017

Yeah, that user beat me to the punch

Jul 18, 2017

We landed on the moon!

    • 1
Jul 18, 2017
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