As reported early this morning, Amazon has offered $13.7 billion for Whole Foods.
This is the Seattle giant’s largest acquisition to date, far surpassing the $1.2 billion it spent to buy online shoe seller Zappos.com in 2009.
Over the past week, Amazon rumors did not revolve around a purchase of Whole Foods, but rather that of another company—Slack, a set of workplace chatroom tools, that boasts 5 million users and may be worth up to $9 billion.
This deal, while incredibly sizeable for Amazon doesn’t make the top 10 chart for largest deals ever. In fact, it’s not even among the ten largest deals in this decade.
|(in billions USD)|
|2017||British American Tobacco||R. J. Reynolds Tobacco Company||49|
|2015||Teva Pharmaceutical Industries||Actavis Generics||41|
|2015||Berkshire Hathaway||Precision Castparts||37|
|2016||Abbott Laboratories||St Jude Medical||31|
|2013||Berkshire Hathaway and 3G Capital||Heinz||28|
|2016||Johnson Controls||Tyco International||22|
|2012||Johnson & Johnson||Synthes||20|
Done Deal? No, but likely
There’s no assurance that this deal will go through; other parties could bid on the 400+ Whole Foods stores. Shares of the Austin-based supermarket chain traded slightly above the $42 per share price offered by Amazon. Why? Some other company could try to outbid Amazon. Barclays only give this deal a 60 percent chance of being completed.
Some will argue that there are entities who would do anything to try to prevent this deal from being completed:
… very few entities that could outbid Amazon, she believes “many will do anything to either make this acquisition more costly…or just prevent the asset from landing in Amazon’s lap, because remember, retail strategic bidders would eliminate overhead at [Whole Foods] in the event of an acquisition, Amazon intends to let Whole Foods operate as is.
This transaction could damage many entities. As such, shares of grocery stores, like Krogers, pharmacies, like CVS and Walgreens, as well as big-box stores, like Costco and Wal-Mart were all trading down significantly today.
While this could result in a bidding war, few if any of the potentially affected companies could afford to bid for Whole Foods. Further, Amazon would likely come out on top in a bidding war.
Why would Amazon want Whole Foods?
There are a couple of strategic plays at work for the online retail giant. For starters, acquiring Whole Foods’ 440 US stores — many of them in prime locations — could bolster the network for AmazonFresh, the company’s grocery delivery service.
“To ship efficiently groceries to consumers, you need physical distribution (item-picking to put parcels together, click-and-collect points) close to the consumer,” analysts at Bernstein wrote in a research note. “Stores are ideally located for that. They won’t look like stores in five years’ time, but they will be in those locations.”
Amazon’s End Game
Amazon can acquire a storied brand with hundreds of locations and learn a great deal.
But Amazon has a strategy that may go beyond selling aged manchego to yuppies. Aside from the aforementioned convenience stores, Amazon has also opened physical bookstores. Now the company is adding a big bricks-and-mortar grocery footprint. So CEO Jeff Bezos could be assembling the components of a Richard Scarry book. Or he could be working out a new way to solve a challenge that has vexed all businesses that promise to deliver a good or service to anyone living in the United States: the last mile. As Dennis Berman of the Wall Street Journal tweeted, Amazon “just bought 431 upper-income, prime-location distribution nodes for everything it does.”
Jeff Bezos: “Alexa, buy me something from Whole Foods.”
Alexa: “Sure, Jeff. Buying Whole Foods now.”
Jeff Bezos: “WHA- ahh go ahead.” pic.twitter.com/GuJ2jlAiuU
— JESAL (@JesalTV) June 16, 2017