Tim Mueller’s Transaction Analysis: New IT M&A Deals June 16

Amazon to Acquire Whole Foods Market

Financial Information*

  • Enterprise Value: ~$13.7B
  • EV/LTM Revenue: 0.9x
  • EV/LTM EBITDA: 10.3x

Transaction Facts

  • Amazon (NASDAQ:AMZN) and Whole Foods Market (NASDAQ:WFM) announced today that both parties have entered into a definitive merger agreement, in which Amazon will acquire Whole Foods for $42 per share in an all-cash transaction valued at ~$13.7B, a 27% premium to Thursday’s closing price.
  • The transaction, which includes Whole Foods’ net debt, is expected to close in the second half of 2017.
  • Following the take-over news this morning, Amazon rose 3% and Whole Foods surged 27%. Conversely, stock prices of competitors tanked — grocery stores Kroger and SuperValu dropped more than 10% each, and retail chains Target and Wal-Mart fell 10% and 6%, respectively.
  • Amazon’s market cap has appreciated by ~$15.6B today.

A New Competitive Landscape

  • Big Bet: As Amazon’s largest acquisition, the deal will give the giant an immediate brick-and-mortar presence from the more than 460 Whole Foods stores concentrated in prime urban locations across the US, Canada and Britain. The retail disruptor, which has dipped its toes in the $800B grocery business with Amazon Fresh, is scaring competitors with its entrance into the large retail market.
  • Window of Opportunity: While Amazon is one step closer to becoming a consumer monopoly, the deal could provide breathing room for drugstores, mass-merchandising outlets and department stores to rethink their strategies and defend their own stakes. Macy’s, AutoZone, and Staples are among the leaders of their sectors that could use this small window of opportunity wisely to rethink their strategies before Amazon fully figures out how to implement its technologies with its retail presence.
  • Maximized Value: This deal will benefit Whole Foods, which has been struggling to sustain profits as a high-cost operator. Now the store will continue operating under its high-end Whole Foods brand while under Amazon.
  • Catch-Up: Competitors are trying to play catch-up. Walmart has agreed to acquire the men’s clothing company Bonobos for $310 million today in an effort to transform itself into a strong e-commerce player, but the critics say the impact will be minimal as Amazon’s presence in e-commerce is unparalleled; Amazon accounts for 43% of U.S. online retail sales and its Prime membership more than doubled in two years. The deal will drive further competition in prices and speed, as Amazon finds a way to sync its technologies and services with its physical stores.

For more information about this transaction, click here to read the press release.

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Whole Foods store sales accelerate, shares rise

AUSTIN, Texas, Wed May 8, 2013 — Whole Foods Market Inc. said store sales have rebounded as it expands efforts to lower prices and reach beyond its core of upscale shoppers by adding more locations, and its shares rose more than 8 percent after hours.
The news from the largest U.S. natural and organic grocery chain dispelled concerns that its store sales were slowing due to competition and sluggish U.S. economic growth.
Same-store sales, a key gauge of performance for retailers, rose 6.9 percent for Whole Foods’ fiscal second quarter that ended April 14. So far this quarter, those sales are up 9.4 percent.
“The demand for fresh, healthy foods continues to grow,” John Mackey, co-founder and co-chief executive officer of Whole Foods Market, said in a statement.
About three weeks into the second quarter, Whole Foods had said its same-store sales growth had cooled to 6.4 percent, dampened by winter storm Nemo and a shift in the day of the week of Valentine’s Day. Analysts also attributed the slower growth to the U.S. payroll tax increase that lowered take home pay.
This quarter’s sales results got a 200 basis point boost from Team Member Appreciation Double Discount Day, but still showed the kind of improvement investors were seeking.
“Even though the 9.4 (percent gain) is more like a 7.4 (percent gain), it’s still a pick up,” BB&T Capital Markets analyst Andy Wolf said.