Amazon.com (ticker: AMZN) has just made big splash in the grocery business. On Friday morning, the e-commerce giant announced is has acquired grocer Whole Foods Market (WFM) for $13.7 billion, a deal that immediately gives Amazon access to a major new market.
The deal represents a price of $42 per share for Whole Foods investors, more than a 27 percent premium to the stock’s closing price on Thursday.
“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,” Whole Foods CEO John Mackey says in a statement. Mackey will remain on as head of Whole Foods after the deal is completed.
The buyout sent shock waves through the grocery industry, which has already been under pressure due to an influx of new competition. Wal-Mart Stores (WMT) shares opened Friday’s session down more than 6.4 percent, Kroger (KR) stock plummeted 16.1 percent, and Sprouts Farmers Market (SFM) stock fell 10 percent. Investors see the deal as a win-win for Amazon and Whole Foods, as Amazon shares traded higher by 3.1 percent on Friday as well.
“This deal should leave no doubt that Amazon is deadly serious about dominating all aspects of retail,” says Paul Cuatrecasas, CEO of Aquaa Partners.
For Amazon investors, the company has added a major brick-and-mortar presence in Whole Foods and an instant distribution network for its AmazonFresh grocery delivery service.
Amazon had reportedly been interested in a Whole Foods acquisition since last year. In March, Citi Research predicted that Americans will spend $100 billion on food-at-home purchases by 2025. At the time, Citi said Walmart was best positioned to capitalize on this growth market, but Amazon’s latest acquisition may have turned the tables.
“[Amazon] can figure out last mile logistics, but they step up their distribution capability to within one hour of probably 75 to 85 percent of households with this move,” Wedbush analyst Michael Pachter said of the Whole Foods acquisition.
The buyout could help AMZN lower its Amazon Fresh distribution costs to help it better compete with the prices for Walmart’s store pick-up service. Back in March, Citi said…
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