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Principale » Amazon to swallow up Whole Foods in $13.7bn deal

Amazon to swallow up Whole Foods in $13.7bn deal

19 Juin 2017

The deal will be seen as a further encroachment by Amazon on the United Kingdom grocery sector's turf after its delivery service Amazon Fresh, covering postcodes across London, Surrey and parts of Hampshire, was launched a year ago in a tie-up with Morrisons.

"The ramifications for all of retail are seismic - not just retailers that sell grocery, but for everyone", Gordon Haskett analyst Chuck Grom said.

Investors in American supermarkets shuddered at the deal, with shares in Wal-Mart falling as much as 7.1 per cent and fellow retailer Kroger Co. smashed down 17 per cent.

Amazon wants to be part of that $100 billion habit.

Amazon has not been shy around its ambitions to expand into physical retail, with leaked internal plans showing that the company wants to open 2,000 grocery stores over the next decade.

Closer to home, some Australian retail heavyweights have kept up the optimism even with news that the global retailer has pivoted into bricks-and-mortar grocery so soon before its launch into the Australian market, with the likes of Gerry Harvey telling Fairfax this morning he believes Amazon will still face tougher conditions here than anticipated.

Not only that, but Whole Foods operates out of affluent urban neighbourhoods (with a few exceptions), placing these new Amazon grocery delivery hubs closest to the upper-income customers who are most likely to have Amazon Prime memberships.

But the merger also raises question about its impact on Whole Foods' ongoing operation, including environmental initiatives like tests of natural refrigerant in a growing number of stores. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market's headquarters will stay in Austin, Texas.

"It's pharmacy. It's having the ability to put stores that are similar to Apple stores inside Whole Foods", he said. And because Amazon can now offer a mix of in-store shopping, same-day delivery, and its usual style of online shopping, it has room to grow.

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Amazon is considering extending the cost-cutting effort with the no-checkout technology it's developing at its Seattle convenience store, "AmazonGo", according to the person familiar with the matter, who asked not to be named because the plans are private.

Whole Foods is renowned in the United States for its high-quality premium organic and natural grocery products.

"Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy", Founder and Chief Executive Officer, Amazon, Jeff Bezos said.

Latham & Watkins corporate partners Adel Aslani-Far and Mark Gerstein are representing Evercore Partners in its role as financial adviser to Whole Foods on its proposed sale to Amazon, while Weil Gotshal & Manges banking partners Morgan Bale and Heather Viets, capital markets partner Faiza Rahman, M&A partner Raymond Gietz and tax partner William Horton are acting for Bank of America/Merrill Lynch and Goldman Sachs, both of which are providing bridge financing for the acquisition of the grocery store chain.

Amazon boss Jeff Bezos said: "Whole Foods Market has been satisfying, delighting and nourishing customers for almost four decades - they're doing an awesome job and I want that to continue". The all-cash deal, valued at $13.7 billion includes WFM debt. The acquisition price implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S&P 500 Food Retail index.

The deal is subject to regulatory and shareholder approval and is expected to complete in the second half of 2017.

Amazon, started in Seattle in 1994 by Bezos, a former hedge fund manager, has grown into the world's biggest diversified online retailer, with a market capitalization of almost $500 billion. "If Amazon can win on price, they will, but it will be about getting things to the customer the fastest", he says. "Either way, it's good for consumers like myself", said Di Wu, a NY resident in her early 30s who is a member of Amazon's Prime fast-shipping club and who shops at Whole Foods at least twice a week.

Goldman Sachs Group Inc advised Amazon on the deal and provided bridge financing.

Amazon to swallow up Whole Foods in $13.7bn deal