Amazon to Buy Whole Foods for $13.7 Billion -- 4th Update
Amazon.com Inc. said it would buy Whole Foods Market Inc. for $13.7 billion as the giant internet retailer makes a deeper push into the grocery space.
Amazon will pay $42 a share for Whole Foods, valuing the grocer at a 27% premium to its closing price Thursday. The deal is expected to close in the second half of this year.
In recent years, Amazon has expanded its online grocery business, AmazonFresh, after testing it in its hometown Seattle for years. Earlier this year, the company said it would launch a new grocery-store pickup service.
While grocery accounts for a large component of consumer sales overall, online retailers have largely been unable to fully crack the code. They face hurdles like consumers wanting to pick their own produce and the need to deliver perishable, fresh and frozen food to people's homes.
Adding a network of grocery stores could help Amazon tackle those issues. Whole Foods has roughly 450 locations spread out across 42 states. The move could allow Amazon to reach customers closer to their homes and even sell more than just groceries. Amazon's bookstores also sell its electronic products like book readers, tablets and media streaming devices.
Amazon's move tanked the stocks of grocery competitors as investors worried that Amazon could do to grocery the same as it did to booksellers. Kroger Co. shares fell 14%, Target Corp. shares fell 12%, Supervalu Inc. shares fell 19%, Costco Wholesale Corp. shares fell 6.2% and Wal-Mart Stores Inc. shares dropped 5.8%.
Amazon's newfound foothold in brick-and-mortar grocery comes at a time when the grocery industry is already reeling from competition, with discounters like Aldi expanding in the U.S. and more customers shopping for groceries online.
Amazon has been inching into Kroger Co. and Wal-Mart Stores Inc.'s territory in recent years at a rapid rate. Americans' shopping trips online have risen 6.8% over the past year, compared with a 0.5% increase in overall grocery trips, according to Nielsen.
Amazon's low prices have partly forced rival grocers to sharpen their deals in return. Kroger on Thursday said traditional grocers are competing for the $1.5 trillion Americans spend on food -- whether that is a fast-food restaurant, convenience store or online. "We have to redefine the market as share of stomach," Kroger Chief Rodney McMullen told investors Thursday. Kroger, which lowered its earnings forecast for the year, set off a wave of declines in grocery stocks, with its shares falling 19%.
David Ciancio, a senior customer strategist for Dunnhumby and former Kroger executive, said "this is the most difficult time I've seen for the industry, and I've been in it 47 years."
Whole Foods has also faced some unique struggles as traditional grocers expand their natural and organic offerings that have been the mainstay of the company.
Activist hedge fund Jana Partners LLC, the company's second-largest shareholder with a roughly 7% stake, and mutual-fund giant Neuberger Berman, which owns 2.7% of the stock have been pressing Whole Foods to consider a sale and add directors with experience in retail operations, technology, finance and real estate.
Shares of Amazon rose 2.9% to $992.43 in early trading, and Whole Foods shares were temporarily halted on the news.
John Mackey will remain as chief executive of Whole Foods and the store will continue to operate under its brand and maintain its suppliers.
Whole Foods' stock has lost nearly half of its value since peaking in 2013, as its same-store-sales have persistently fallen since September 2015.
Write to Austen Hufford at austen.hufford@wsj.com and Annie Gasparro at annie.gasparro@wsj.com
(END) Dow Jones Newswires
June 16, 2017 10:03 ET (14:03 GMT)